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O'Keefe v. Friedman & Friedman, Ltd.

United States District Court, D. New Jersey

March 29, 2018

JAMES O'KEEFE and DEMODULATION, INC., Plaintiffs,
v.
FRIEDMAN & FRIEDMAN, LTD., Defendant.

          OPINION DENYING PLAINTIFFS' MOTION TO AMEND

          Leda Dunn Wettre, United States Magistrate Judge.

         Before the Court is plaintiffs' motion for leave to amend the Complaint. ECF No. 38. Defendant opposes the motion. ECF No. 39. This motion is decided without oral argument, pursuant to Federal Rule of Civil Procedure 78. Having considered the parties' submissions, plaintiffs' motion to amend is DENIED for the reasons set forth below.

         I. BACKGROUND

         This is a legal malpractice action in which plaintiffs allege defendant Friedman & Friedman, Ltd. ("Friedman & Friedman") and various other law firms failed to properly represent Demodulation, Inc. in three patent infringement actions. Plaintiffs commenced this action in the Superior Court of New Jersey, Bergen County, Law Division in March 2016. See ECF No. 1-1. Defendant removed the action to this Court on grounds of diversity of citizenship jurisdiction, 28 U.S.C. § 1332, in August 2016. See ECF No. 1. Plaintiff James O'Keefe is a citizen of New Jersey and plaintiff Demodulation is a Delaware corporation with its principal place of business in New Jersey. ECF No. 1-1 ¶¶ 1-2. Defendant Friedman & Friedman is an Illinois corporation whose principal place of business is in Chicago, Illinois. ECF No. 1 ¶ 16. The amount in controversy exceeds the $75, 000 jurisdictional threshold.

         Shortly after defendant removed the action to this Court, then-counsel for plaintiffs filed a motion to withdraw, ECF No. 4, and defendant filed a motion to dismiss for lack of personal jurisdiction and for failure to state a claim, ECF No. 5. The Court granted the motion to withdraw and defendant's motion to dismiss was administratively terminated to permit plaintiffs time to secure new counsel. ECF Nos. 12, 13. Acting pro se, plaintiff O'Keefe filed a motion for leave to amend the complaint on March 6, 2017.[1] ECF No. 25. Joshua Thomas, Esq. filed a notice of appearance on behalf of plaintiffs on July 12, 2017, and plaintiffs pro se motion to amend was withdrawn without prejudice. ECF No. 31. The Court held an in-person settlement conference with the parties on September 29, 2017, after which the Court granted plaintiffs leave to file the instant motion by November 9, 2017, which was timely filed. ECF Nos. 37, 38. Defendant opposes the motion. ECF No. 39.

         Plaintiffs seek to file an Amended Complaint that would add several defendants and claims to the current Complaint. Presently, the Complaint alleges that in September 2015, plaintiffs retained defendant Friedman & Friedman to represent Demodulation in a patent infringement matter, Demodulation, Inc. v. United States, Civ. No. 11-236, filed in the Court of Federal Claims. ECF No. 1-1 ¶¶ 5-6. The Complaint further alleges that due to defendant's failure to perform its duties, plaintiffs terminated the agreement two months later on November 16, 2015. Id. ¶ 10. Nevertheless, plaintiffs allege, the defendant billed plaintiffs approximately $270, 000 for legal work done in connection with the litigation. Id. ¶ 11. The Complaint asserts a claim for legal malpractice and seeks a declaration of reasonable legal fees, a declaration that the fees billed by defendants are unreasonable, and the return of plaintiffs' files. Id. at 3-7.

         The Proposed Amended Complaint ("PAC") includes the foregoing allegations, as well as entirely new factual allegations and claims against additional defendants. The allegations, although difficult to discern, seem essentially to aver that defendant Friedman & Friedman and the proposed defendants conspired to defraud plaintiffs. See PAC, ECF No. 38. The PAC alleges that in November 2010, proposed defendant Benjamin Light, Esq. served as lead counsel for Demodulation and that his firm, Armando & Light, merged into the Callagy Law Firm. Id., ¶¶ 1-3. According to the PAC, the Callagy Law Firm filed three lawsuits on behalf of Demodulation in the Superior Court of New Jersey, the District of New Jersey, and the Court of Federal Claims, for which the firm received significant funds from a New-Jersey based company, Law Funder, and a large amount of documentation and evidence from Demodulation. Id. ¶¶ 7-11. The PAC avers that although Mr. Light believed in the merits of the lawsuits, Mr. Callagy did not and conspired to curtail their success by, inter alia, failing to retain the necessary resources and experts, tampering with Mr. Light's pleadings, and unilaterally dismissing one action. Id., ¶¶ 12-17, 20. The PAC does not provide any explanation of the three alleged underlying lawsuits, and therefore it is entirely unclear to which suits the PAC is referring, and the way in which this alleged behavior affected the suits.

         The PAC goes on to allege that Mr. Light and Mr. Callagy had an employment dispute that negatively affected Demodulation's lawsuits. Id. ¶¶ 19-28. The PAC states that after the dispute was resolved, plaintiffs' lawsuits were assigned to a junior attorney at the Callagy Firm, Mr. Saltman, who was incapable of handling the actions. Id. ¶¶ 29-31. The PAC states Mr. Light, then, attempted to "scuttle Demodulation's lawsuits" by engaging in unauthorized "backdoor" settlement discussions with a defendant in one of the actions and intensely pressured plaintiffs to settle. Id. ¶¶ 32-35. The PAC then appears to allege that the firm's failure to properly represent Demodulation in an unidentified lawsuit, which allegedly included filing a pleading after the statute of limitations had passed, a "dump" of discovery upon opposing counsel, and improperly giving experts confidential information, resulted in multiple Court imposed sanctions against the company. Id. ¶¶ 37-39, 44-45. The PAC further avers that the Callagy Firm lost a number of critical documents relating to the actions. Id. ¶¶ 41-43.

         The PAC then seems to turn its allegations against the proposed defendants from negligent to intentionally tortious conduct. Plaintiffs allege that Mr. Light and Mr. Smikun, whose involvement is not explained and who is not named as a proposed defendant in this matter, "wrote two extortion letters" demanding that Mr. O'Keefe perjure himself, in a manner unexplained by the PAC, regarding their representation of Demodulation in the patent actions. Id. ¶¶ 46-51. The PAC alleges this was done in order to "mitigate against any possible malpractice suit... by Demodulation." Id. ¶ 50.

         The PAC then claims that Mr. Callagy, Mr. Light, Mr. Smikun, and Mr. McKenna, [2]conspired and "crafted a scheme for their own pecuniary gain, " id. ¶¶ 55-56, and that "an enterprise consisting of four law firms, a ... funding company, and a total of twelve individuals" was formed "for the purpose of running a money laundering scheme to divert 'contingency' funds intended for three lawsuits filed by Demodulation Inc., to other purposes and to facilitate fraudulent actions." Id. ¶ 94. Although the underlying facts comprising this scheme are unclear, the PAC avers that the scheme included the following: the Callagy Firm obtained a $3, 000, 00 malpractice insurance policy, id. ¶ 58; Mr. Light gave his old friend, Mr. McKenna, $200, 000 to take on Demodulation as a client "in return for protecting The Calagy [sic] Defendants from exposure for their actions, " id. ¶¶ 60-62; and the alleged conspirators would "obtain an additional $269, 441.25 kickback comprised of lawyer fees claimed by Friedman [&] Friedman, Ltd., " id. ¶ 57.

         The PAC appears to imply that plaintiffs were not informed of the purported relationship between the law firms. Id. ¶ 66. Further, without elaboration, the PAC alleges that Mr. O'Keefe was forced to sign two contracts: one releasing the Callagy attorneys from liability, id. ¶ 67, and another retaining Friedman & Friedman, the originally named defendant, under which O'Keefe agreed to be held personally responsible for the legal fees of Demodulation, id. ¶¶ 110, 113. As alleged in the original Complaint, the PAC avers that Friedman & Friedman's representation of Demodulation quickly deteriorated. The PAC adds that as a result, a judgment in favor of Friedman & Friedman of $269, 411.25 was entered against Mr. O'Keefe in Illinois. Id. ¶ 91. Additionally, the PAC alleges that this judgment was issued as a result of Mr. McKenna's failure adequately to represent plaintiffs. Id. ¶¶ 89-90.

         Based on the foregoing allegations, plaintiffs seek leave to implead multiple defendants, including thirteen law firms and eight attorneys, [3] and to assert additional claims for fraud, wire fraud, a violation of the Racketeer Influenced and Corrupt Organization Act ("RICO"), legal malpractice, and breach of contract. Plaintiffs assert this Court would have federal question jurisdiction over the proposed amended action pursuant to 28 U.S.C. § 1331.

         II. DISCUSSION

         Defendant Friedman & Friedman argues the Court should deny plaintiffs' motion to amend because the new claims against the additional defendants in its proposed Amended Complaint are futile.[4] See Defendant's Opposition, ECF No. 39. For the reasons set forth below, the Court denies plaintiffs' motion to amend the Complaint.

         Rule 15(a)(2) of the Federal Rules of Civil Procedure provides that a court should "freely give leave [to amend] when justice so requires." Fed.R.Civ.P. 15(a)(2). Courts grant leave to amend liberally in light of "the principle that the purpose of pleading is to facilitate a proper decision on the merits." Foman v. Davis, 371 U.S. 178, 182 (1962). The United States Supreme Court holds that leave to amend under Rule 15 may be denied in cases of: (1) undue delay; (2) bad faith or dilatory motive; (3) undue prejudice; or (4) futility of amendment. Id. "The burden is generally on the party opposing the amendment to demonstrate why the amendment should not be permitted." Luppino v. Mercedes-Benz USA, LLC, Civ. No. 09-5582 (DMC) (JAD), 2012 WL 850743, at *2 (D.N.J. Mar. 8, 2012).

         A. ...


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