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Hartleib v. Weiser Law Firm, P.C.

United States District Court, D. Kansas

August 21, 2019

MICHAEL HARTLEIB, Plaintiff,
v.
THE WEISER LAW FIRM, P.C., et al., Defendants.

          MEMORANDUM AND ORDER

          CARLOS MURGUIA, UNITED STATES DISTRICT JUDGE

         Defendants Robert Weiser and The Weiser Law Firm (“Weiser defendants”) move to dismiss plaintiff Michael Hartleib's complaint for failure to state a claim for legal malpractice, abuse of process, and violations of the Kansas Consumer Protection Act (KCPA). (Doc. 5.) Defendant Monica Ross-Williams moves to dismiss plaintiff's claims against her for lack of personal jurisdiction, and in the alternative for failure to state a claim for breach of fiduciary duty and abuse of process. (Doc. 7.)

         I. FACTUAL BACKGROUND

         This case arises from the settlement of multiple shareholder derivative actions, brought in 2009, based on the unsatisfactory merger of the former Sprint Nextel corporation. Plaintiff is a shareholder in Sprint Corporation, former shareholder in Sprint Nextel, and was an objector to the comprehensive settlement of the underlying derivative litigation. Defendants are the former nominal plaintiff in one of the many underlying derivative actions, and her counsel in that action.

         In 2009, plaintiff retained a law firm to file a shareholder derivative action on behalf of Sprint Nextel. On or around March 22, 2009, this first firm allegedly entered an agreement with Weiser defendants which provided that the Weiser firm would be co-counsel for the derivative action. On or about March 27, 2009, Weiser defendants informed plaintiff that they would not be filing the action in his name due to a perceived conflict. Weiser defendants then represented defendant Ross-Williams on behalf of Sprint Nextel in essentially the same derivative action. On July 14, 2011, plaintiff retained other counsel and filed a derivative action on behalf of Sprint Nextel in his own name.

         Plaintiff's key issues in the instant matter revolve around two later events: (1) the underlying settlement through the Ross-Williams action, and (2) a protective order obtained by defendants during the post-settlement approval process. In the underlying settlement process, Weiser defendants sought approval for $4.25 million in attorney's fees, to be split among various firms in the actions that were part of the settlement. Plaintiff filed objections to both the settlement and the attorney's fee request, arguing that the fees requested were excessive and that the settlement's corporate governance reforms were meaningless, lacking enforcement power, and otherwise irrelevant after the buyout and restructure of Sprint Nextel into Sprint Corporation by Softbank.

         After inspection of Weiser defendants' billing records and consideration of plaintiff's objection, the state trial court reduced attorney's fees from $4.25 million to $450, 000. The trial court stated concerns that substantial work appeared “illusory” and that some of Weiser defendants' billing records were not “remotely accurate or credible.” (Doc. 6-5, at 29.) However, the court noted that some settlement provisions had meaningful value and approved the settlement with reduced attorney's fees.

         On February 3, 2017, it came to light that several thousand of Weiser defendants' hours worked were billed by a disbarred attorney, and the Kansas Court of Appeals remanded on March 30, 2017 for re-evaluation of appropriate attorney's fees. The trial court concluded this revelation only supported the original reduction and re-affirmed the settlement after noting the disbarred attorney was not involved in the substance of the agreement.

         Between this revelation and the re-approval of the reduced attorney's fees, plaintiff directly called and e-mailed defendant Ross-Williams. Plaintiff allegedly took this action to investigate defendant's knowledge of and involvement in the litigation. Plaintiff alleges that defendant was completely unaware of any details in the underlying litigation. On the day of plaintiff's e-mail, Weiser defendants contacted plaintiff to request he cease communicating directly with defendant Ross-Williams, except through counsel. Plaintiff refused, defendants moved for a protective order, and the Court of Appeals granted the protective order.

         Plaintiff alleges that this protective order was obtained by defendants filing false accusations of threats and harassment, and that Weiser defendants later used the order in retaliation to a March 2018 amicus brief. Plaintiff moved to reconsider and vacate the order, and the Court of Appeals denied his motions on April 27, 2018, “contin[uing] to find it to be inappropriate for a party to communicate directly with a represented party during the course of litigation[.]” (Doc. 6-9, at 2.) The Court of Appeals affirmed the trial court's approval, and thus the last of the settlement, the same day. Plaintiff then filed a petition for review with the Supreme Court of Kansas, denied on November 21, 2018.

         Plaintiff now alleges malpractice and violations of the KCPA against Weiser defendants in connection with their legal services; abuse of process against both defendants in connection with the protective order; and breach of fiduciary duty against defendant Ross-Williams in connection with the underlying litigation.

         II. LEGAL STANDARDS

         A. 12(b)(2)

         On a motion to dismiss under Rule 12(b)(2), the plaintiff bears the burden of establishing a prima facie showing of jurisdiction over the defendant. Dudnikov v. Chalk & Vermillion Fine Arts, Inc., 514 F.3d 1063, 1069 (10th Cir. 2008). When the court rules on a Rule 12(b)(2) motion prior to evidentiary hearing, the plaintiff may meet his burden by showing facts through affidavits or pleading facts that, if true, would support jurisdiction. Id. at 1069-70.

         B. 12(b)(6)

         On a motion to dismiss under Rule 12(b)(6), the court assumes true all well-pleaded facts in the complaint, disregards all legal conclusions worded as factual allegations, and grants the plaintiff all reasonable inferences from the pleadings. Colony Ins. Co. v. Burke, 698 F.3d 1222, 1228 (10th Cir. 2012). To survive a motion to dismiss, the complaint “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face, ” not merely possible. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Co. v. Twombly, 550 U.S. 544, 570 (2007)) (quotation marks omitted); see Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007). The court may consider documents referred to in the complaint if they are central to the claim and their authenticity is not disputed. Smith v. United States, 561 F.3d 1090, 1098 (10th Cir 2009).

         III. DISCUSSION

         The court will address defendant Ross-Williams's motion (Doc. 7) before turning to Weiser defendants' motion (Doc. 5).

         A. Ross-Williams's Motion

         Defendant Ross-Williams moves to dismiss for lack of personal jurisdiction, arguing that her filing of a representative action does not satisfy minimum contacts with Kansas, that she never entered Kansas during the underlying litigation (Doc. 8-10, at 2-3 (Ross-Williams Aff.)), and that exercising personal jurisdiction would violate traditional notions of fair play and substantial justice. Plaintiff argues that defendant's filing of the underlying lawsuit purposefully availed her of the protections of Kansas, and in the alternative that defendant's alleged abuse of process is an intentional tort whose effect was centered in Kansas.

         1. 12(b)(2)

         “To obtain personal jurisdiction over a nonresident defendant in a diversity action, a plaintiff must show that jurisdiction is legitimate under the laws of the forum state and that the exercise of jurisdiction does not offend the due process clause of the Fourteenth Amendment.” Benton v. Cameco Corp., 375 F.3d 1070, 1074 (10th Cir. 2004) (internal quotation marks omitted). Because the Kansas long arm statute is construed to assert personal jurisdiction over a nonresident defendant to the full extent permitted by the due process clause, the statutory and constitutional analysis are effectively the same. See Blue Beacon Intern., Inc. v. Am. Truck Washes, Inc., 886 F.Supp. 485, 488 (D. Kan. 1994) (citing Volt Delta Res., Inc. v. Devine, 740 P.2d. 1089, 1092 (1987)). Because defendant Ross-Williams is neither present nor resident in Kansas, only specific jurisdiction applies.

         i. Specific Jurisdiction

         Specific jurisdiction looks to “the relationship among the defendant, the forum, and the litigation.” Daimler AG v. Bauman, 571 U.S. 117, 133 (2014) (quoting Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). When examining these relationships, “courts typically make three inquiries: (1) whether the defendant purposefully directed its activities at residents of the forum state; (2) whether the plaintiff's injury arose from those purposefully directed activities; and (3) whether exercising jurisdiction would offend traditional notions of fair play and substantial justice.” Newsome v. Gallacher, 722 F.3d 1257, 1264 (10th Cir. 2013) (citing Dudnikov, 514 F.3d at 1070).

         The “purposeful direction” requirement has three elements: (1) an intentional action; (2) expressly aimed at the forum state; (3) with knowledge that the brunt of the injury would be felt in the forum state.[1] Dudnikov, 514 F.3d at 1072. The goal of the “purposeful direction” requirement is “to ensure that an out-of-state defendant is not bound to appear to account for merely ‘random, fortuitous, or attenuated contacts' with the forum state.” Id. at 1071 (citation omitted). Allegations of primarily passive out-of-state conduct do not support the intentional action necessary for purposeful direction. See Toytrackerz LLC v. Am. Plastic Equip., Inc., 615 F.Supp.2d 1242, 1254 (D. Kan. 2009).

         Here, plaintiff claims defendant intentionally (1) breached a fiduciary duty owed to Sprint Nextel and shareholders, and (2) abused the legal process in the underlying litigation by obtaining a protective order under false pretenses. Plaintiff's claim for breach of fiduciary duty in his individual capacity encounters multiple problems unique to representative litigation.

         First, the underlying litigation was a derivative action filed to enforce rights of the corporation against its board of directors, not the rights of defendant Ross-Williams. Derivative actions are distinct from shareholder class actions, which are brought to enforce shareholder rights or for redress of shareholder injury. Specific personal jurisdiction requires that “[defendant] directed its activities at residents of the forum state, ” but defendant's filing as a nominal plaintiff is an enforcement of the corporation's rights, not her own activity. See ...


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