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Adams v. Corr Cronin Michelson Baumgardner Fogg and Moore PLLP

United States District Court, W.D. Washington, Seattle

June 28, 2019

SAM A. ADAMS and ERIKA M. ADAMS, husband and wife; HOLLYSTONE HOLDINGS, INC., a Washington corporation, Plaintiffs,
CORR CRONIN MICHELSON BAUMGARDNER FOGG AND MOORE PLLP, a Washington limited liability partnership; and GUY MICHELSON, Defendants.


          Thomas S. Zilly United States District Judge.

         THIS MATTER comes before the Court on Defendants' Motion for Summary Judgment, docket no. 20. Having reviewed all papers filed in support of, and in opposition to, the motions, [1] the Court enters the following order granting summary judgment.


         Plaintiffs Sam and Erika Adams bring this legal malpractice action against their former attorneys, Corr Cronin LLP and Guy Michelson (together, “Corr Cronin”). Complaint, docket no. 1-1, at 4-13. In 2012, Sam Adams acquired Hollystone Holdings, Inc. (“Hollystone”), which owned several health clubs in Washington and Oregon. Adams obtained financing for subsequent improvements from Allstate Financial Group, Inc. (“Allstate”), which was owned by John Michael and Barratt Leasing, Inc. (“Barratt”). See Declaration of Keith D. Petrak (“Petrak Decl.”), docket no. 21, Exs. 13-17. Hollystone and Allstate entered into an arrangement where Allstate would collect payments of club members' monthly fees, from which Allstate would deduct a percentage to repay amounts Hollystone owed Allstate. Id., Exs. 13, 15. In December 2013, Sam Adams entered into two memorandum agreements with Allstate and Barratt, assigning several of the health clubs to them in exchange for unpaid debts. Id., Exs. 22, 23.

         Weeks later, in an engagement letter dated January 10, 2014, Corr Cronin undertook representation of Hollystone and the Adamses in connection with claims against Allstate and Barratt. Id., Ex. 21. In that engagement letter, Corr Cronin specified that it was “not undertaking a general representation of you, but will be representing you only as to the above-referenced action [i.e., Hollystone, et al. v. Allstate Financial Group, et al.].” Id. Thereafter, Corr Cronin filed a complaint in state court on January 16, 2014 on behalf of Hollystone and several subsidiary health clubs against Allstate and Barratt alleging breach of contract, accounting, and rescission of the December 2013 agreements. Id., Ex. 1.

         Corr Cronin served written discovery requests on Allstate and its bank in the state court action. Id., Exs. 30, 103, 104. However, prior to receiving responses to those requests, the plaintiffs in the state court action elected to settle the case. Id., Ex. 50.

         Plaintiffs in the present action-Sam and Erika Adams, who controlled the plaintiff companies in the earlier state court action-allege that Corr Cronin counseled them that settlement was the best option, that “[w]e can't prove that he's stealing money” and that the Adamses were “not going to get [a] better” result. Petrak Decl., docket no. 21, Ex. A (Transcript of Deposition of Sam Adams), at 43. The parties finalized the settlement in February 2014 which yielded more than $1, 000, 000 to plaintiffs in cash and debt forgiveness, (id., Ex. 50), and the matter was dismissed on March 28, 2014 (id., Ex. 99).[2] Corr Cronin billed Plaintiffs for work through July 2, 2014, after which Corr Cronin performed no further work for Plaintiffs or their companies. See id., Ex. 20.

         In April of 2014, shortly after the state court proceeding had been settled and dismissed, the Washington Department of Labor and Industries fined Sam Adams for wage payment violations, (id., Ex. 59), and the Attorney General's Office notified Adams that he was the target of a related criminal investigation, (id., Ex. 55). Plaintiffs filed for bankruptcy on June 28, 2014. Declaration of Brian J. Waid, docket no. 28, Ex. D, at 2 (docket entry no. 1 for Chapter 11 Voluntary Petition). Despite the earlier settlement of Hollystone's claims against Allstate and Barratt, Plaintiffs' bankruptcy schedules identified potential business tort claims against Allstate and Barratt. See, e.g., id., Ex. 60, at 8.

         On February 4, 2015, the State of Washington initiated criminal proceedings against Plaintiff Sam Adams. Id., Ex. BB. Adams retained David Smith to represent him in the criminal matter. Id., Ex. 74. One potential defense in the criminal proceeding involved proving that Allstate and Barratt had defrauded Hollystone and its health clubs, resulting in underpayment of wages. To that end, Smith counseled Plaintiffs to retain a forensic accountant and to “move quickly” if they wanted to “undo the Hollystone v AFG/Barr[a]tt settlement.” Id., Ex. 77 at 2. Plaintiffs did not contact a forensic accountant until November 2016. Within six months of that engagement, the accountant produced two reports that purported to prove that Allstate and Barratt enacted a “scheme to defraud” Hollystone and the subsidiary clubs. Id., Exs. 84, 85.

         Plaintiffs filed their Complaint against Corr Cronin and Guy Michelson on July 6, 2018. See Record on Appeal, docket no. 1-1, at 2. The complaint contains a single claim against Defendants for legal malpractice, alleging that Defendants failed to conduct a sufficient investigation into potential fraud by Allstate and Barratt, improperly counseled Plaintiffs to settle their lawsuit against Allstate and Barratt, and exposed Plaintiffs to additional civil and criminal liability by failing to uncover Allstate and Barratt's fraud.

         After filing their complaint, Plaintiffs moved to withdraw the reference on August 22, 2018. See docket no. 1. Defendants then moved for summary judgment arguing that Plaintiffs' claims are untimely and barred by the uncollectability defense. See Defs.' Mot. for Summary Judgment, docket no. 20.


         I. Standard of Review

         The Court shall grant summary judgment if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A fact is material if it might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). To survive a motion for summary judgment, the adverse party must present affirmative evidence, which “is to be believed” and from which all “justifiable inferences” are to be favorably drawn. Id. at 255, 257. When the record, however, taken as a whole, could not lead a rational trier of fact to find for the non-moving party, summary judgment is warranted. See Beard v. Banks, 548 U.S. 521, 529 (2006) (“Rule 56(c) ‘mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'” (quoting Celotex, 477 U.S. at 322)). When the ...

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