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, 401 East Ocean Boulevard, Suite 1040, Long Beach, CA 90802, 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.) Notwithstanding the inexplicable conduct exhibited by Defendant Sebastian Rucci ("Rucci") in representing Western Thrift, this Court will recommend that Plaintiff's Motion for Summary Judgment (ECF No. 47) be denied because a genuine issue of material fact exists with respect to the but-for causation required in a Minnesota legal-malpractice action.
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 both of the Underlying Defendants. (Compl. ¶ 15, ECF No. 1.) According to Western Thrift, Homeowners assumed full responsibility for defending the Underlying Action pursuant to the service agreement between Western Thrift and Homeowners. (Compl. ¶¶ 17-18; see ECF No. 51-2, ¶ 7.5.)
B. Rucci's Representation of Western Thrift
In February 2009, Homeowners fired Patterson Thuente and hired 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 totaling $25, 000.00. (ECF No. 51-34 at 2-3.) After Rucci was hired, Western Thrift received no further communication concerning the Underlying Action until January 2010, when it received a motion for default judgment from the Underlying Plaintiffs. Rucci never attempted to contact Western Thrift while the Underlying Action was in litigation. ( See Rucci Dep. 82:19-87:2.)
Meanwhile, Rucci encountered difficulty being admitted in the District of Minnesota. Rucci's motion for admission pro hac vice was denied. (ECF No. 51-12 at 3.) Rucci was then unable to obtain local counsel in accordance with Local Rule 83.5, and his subsequent request for additional time was denied. (ECF No. 51-14 at 2.) At no point did Rucci tell Western Thrift that he had not been admitted in Minnesota. (Rucci Dep. 136:10-137:16.) Rucci believed that Homeowners was keeping Western Thrift informed of the proceedings. ( Id. )
On May 14, 2009, Homeowners, through Rucci, 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.) Through the bankruptcy process, Rucci hoped to remove the Underlying Action to the Central District of California, where he is admitted to practice and thereby 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. On September 1, 2009, the bankruptcy judge granted the motion, remanding the action to Minnesota and lifting the automatic stay. (ECF No. 51-27 at 2, 5.) Rucci never notified Western Thrift of Homeowners's 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's 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, given Homeowners's bankruptcy and Western Thrift's status as a creditor therein, Rucci believed that continued representation of both Homeowners and Western Thrift constituted a conflict of interest. ( Id. 183:6-184:17.) Yet, Rucci never informed Western Thrift of the conflict. ( Id. 188:5-16.)
C. Motion for Default Judgment
Litigation in the Underlying Action continued. 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 filings and correspondence, this motion was served on Western Thrift. (ECF No. 51-31 at 4.) The motion was the first notification Western Thrift received of the Underlying Action since Homeowners retained Rucci and "completely surprised Western Thrift." (Compl. ¶ 42.) After receiving the motion, Trafton contacted Rucci and arranged for Western Thrift's current counsel, Hinshaw & Culbertson, LLP ("Hinshaw & Culbertson"), to enter an appearance for the Underlying Defendants. ( Id. ¶ 43.)
Through its new counsel, Western Thrift opposed the motion, arguing that default judgment was inappropriate because its conduct in the Underlying Action was "the result of lack of communication, miscommunication and a mistaken belief that it was represented by counsel." (Def.'s Mem. in Opp'n 16, Underlying Action, No. 07-cv-4306 (DSD/JJG), ECF No. 94.) In his May 10, 2010 order granting default judgment, United States District Judge David S. Doty noted that "a party is responsible for the actions and conduct of his counsel" and "impute[d] Rucci's failure to defend [the Underlying Action] to Western Thrift." (Order Granting Default J. 5-6.) Judge Doty did not address Western Thrift's claim that it had a meritorious defense, emphasizing that "where the conduct of a party amounts to willful misconduct, the existence of a meritorious defense does not prohibit default judgment." ( Id. (quoting Ackra Direct Mktg. Corp. v. Fingerhut Corp., 86 F.3d 852, 857 (8th Cir. 1996).) Judge Doty granted the Underlying Plaintiffs' motion and entered default judgment against Western Thrift. ( Id. at 6.)
On February 18, 2011, Judge Doty found the Underlying Defendants jointly and severally liable to the Underlying Plaintiffs for damages in the amount of $98, 891.52. (ECF No. 51-33 at 25.) In addition, the Underlying Defendants were jointly and severally liable for the Underlying Plaintiffs' costs and attorneys' fees in the amount of $150, 781.80. ( Id. ) Western Thrift subsequently settled with the Underlying Plaintiffs for $215, 000. (ECF No. 51-36.) Western Thrift paid $257, 532.89 in attorneys' fees to Hinshaw & Culbertson for representation in the Underlying Action. (ECF No. 51-38).
D. The Present Action
On December 20, 2011, Western Thrift filed the instant suit against Rucci, alleging negligence and breach of contract stemming from Rucci's representation of Western Thrift in the Underlying Action. Specifically, Western Thrift alleges that Rucci's negligent representation and breach of the contract for legal representation caused default judgment to be entered against Western Thrift in the Underlying Action.
On January 30, 2013, Western Thrift filed the instant motion for summary judgment. Western Thrift argues that "even though [it] had a meritorious defense [in the Underlying Action], this Court entered default judgment against [it] on a punitive basis, because of Rucci's failures." (Pl.'s Mem. in Supp. 1, ECF No. 50.)
Rucci opposes the motion, asserting that his conduct was not negligent because (1) he employed a legitimate litigation strategy and (2) when that strategy was unsuccessful, he could no longer represent Western Thrift following the remand because of a conflict of interest. (Def.'s Mem. in Opp'n 19, ECF No. 57; Rucci Dep. 183:6-184:17.) Rucci also argues that ...