Thomas P. Kane & Shushanie E. K. Liesinger, Hinshaw & Culbertson LLP, 2000 Accenture Tower, 333 South Seventh Street, Minneapolis, MN 55402, for Plaintiff; and
Sebastian Rucci, pro se Defendant.
REPORT & RECOMMENDATION
TONY N. LEUNG, Magistrate Judge.
This matter is before the Court, United States Magistrate Judge Tony N. Leung, on Plaintiff Western Thrift and Loan's ("Western Thrift") Motion for Summary Judgment (ECF No. 47). This motion has been referred to the Magistrate Judge for report and recommendation to the district court under 28 U.S.C. § 636 and Local Rule 72.2(b). The parties consented to a waiver of the hearing. (ECF No. 65.) Based upon the memoranda, and all the files, records and proceedings herein, this Court will recommend that Plaintiff's Motion for Summary Judgment (ECF No. 47) be denied and this action be dismissed with prejudice.
A. The Underlying Action
In October 2007, R & D Financial Solutions, Inc., together with its owners Dan Pullis, and Robert Maki (collectively, "Underlying Plaintiffs") commenced a suit against Homeowners Lending Corporation ("Homeowners") and Western Thrift (collectively, "Underlying Defendants"), in the United States District Court for the District of Minnesota, Court Filing No. 07-CV-4306 DSD/JJG ("Underlying Action"). (ECF No. 51-1.) Western Thrift's chief legal counsel, Mark Trafton, hired Aaron Davis of Patterson, Thuente, Skaar, and Christensen, P.A. ("Patterson Thuente") to represent the Underlying Defendants. (Compl. ¶ 15, ECF No. 1.) Pursuant to the service agreement between Western Thrift and Homeowners, Trafton instructed Homeowners to "defend, indemnify and hold Western Thrift harmless with respect to the Underlying [Action]." (Compl. ¶ 17; see ECF No. 51-2, ¶ 7.5.) According to Western Thrift, Homeowners assumed full responsibility of defending the Underlying Action. (Compl. ¶ 18.)
B. Rucci's Representation of Western Thrift
In February 2009, Homeowners fired Patterson Thuente and hired Defendant Sebastian Rucci to represent the Underlying Defendants. ( Id. ¶ 19.) Rucci understood that he was hired to represent both Homeowners and Western Thrift. (Rucci Dep. 209:22-25, ECF No. 51-8; see Compl. ¶¶ 21-22.) Western Thrift paid Rucci a retainer fee on March 24, 2009 and June 30, 2009. (ECF No. 51-34 at 2-3.) After Rucci was hired, Western Thrift alleges it received no further communication concerning the Underlying Action until it received a motion for default judgment from the Underlying Plaintiffs in January 2010. (Compl. ¶ 25.) During his time as Western Thrift's legal representative in the Underlying Action, Rucci never attempted to contact Western Thrift. ( See Rucci Dep. 82:19-87:2.)
Meanwhile, Rucci encountered difficulty being admitted pro hac vice in the District of Minnesota. (Compl. ¶¶ 27-33.) On March 24, 2009, Rucci filed a motion for admission pro hac vice. ( Id. ¶ 27.) Magistrate Judge Graham denied Rucci's motion and required Rucci to obtain local counsel in accordance with Local Rule 83.5. (ECF No. 51-12 at 3.) Rucci was unable to obtain local counsel, and Judge Graham denied Rucci's request for additional time. (ECF No. 51-14 at 2.) At no point did Rucci contact Western Thrift to notify it that he was not admitted in Minnesota. (Rucci Dep. 136:10-137:16.) Rucci believed that Homeowners was keeping Western Thrift informed of the proceedings. ( Id. )
Rucci decided to take a different tack. On May 14, 2009, Homeowners filed for bankruptcy in the Central District of California, which caused an automatic stay in the Underlying Action under 11 U.S.C. § 362(a). (ECF No. 51-15 at 2.) Rucci hoped to remove the Underlying Action to the Central District of California, where Rucci is admitted to practice law and could commence defending Western Thrift. (Rucci Dep. 132:1-133:11.) The Underlying Plaintiffs moved to remand the Underlying Action to the District of Minnesota. (Compl. ¶ 36.) On September 1, 2009, Bankruptcy Judge Robert Kwan granted the Underlying Plaintiffs' motion, and the Underlying Plaintiffs informed Judge Graham that the Underlying Action had been remanded to Minnesota and the automatic stay had been lifted. (ECF No. 51-27 at 2, 5.) Rucci never notified Western Thrift of Homeowners' bankruptcy proceedings and his plans to remove the Underlying Action to the Central District of California. (Rucci Dep. 176:16-178:2.) Rucci believed that Western Thrift would have been notified of the bankruptcy proceedings as Homeowners' creditor. ( Id. )
After the stay was lifted and the Underlying Action recommenced in Minnesota, Rucci took no further part in the litigation, despite the fact that he was still the Underlying Defendants' attorney of record. ( Id. 159:14-160:18.) At this point, Homeowners was in bankruptcy; because Western Thrift was listed as a creditor in Homeowners' bankruptcy action, Rucci believed that his continued simultaneous representation of both Homeowners and Western Thrift would have constituted a conflict of interest. ( Id. 183:6-184:17.) Rucci never contacted Western Thrift to inform it of the conflict. ( Id. 188:5-16.)
C. Motion for Default Judgment
Neither Rucci nor Western Thrift attended the pretrial conference for the Underlying Action. (Order Granting Default J. 5, ECF No. 51-32.) The Underlying Plaintiffs subsequently moved for default judgment against all Underlying Defendants on January 21, 2010. ( Id. at 4.) Unlike previous correspondences, this motion was served directly to Western Thrift. (ECF No. 51-31 at 4.) The motion "completely surprised Western Thrift, " as it was the first notification Western Thrift received of the Underlying Action since Homeowners retained Rucci. (Compl. ¶ 42.) At this ...