United States District Court, W.D. Washington, Seattle
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.
S. Zilly United States District Judge.
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,
Court enters the following order granting summary judgment.
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.
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.
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.
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.
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.
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.
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.
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
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.
Standard of Review
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 ...