# Kurlander v. Kaplan

> District Court, M.D. Florida · December 12, 2019

URL: https://www.frixlaw.com/law-library/cases/10104192

## Case

- **Court:** District Court, M.D. Florida
- **Decided:** December 12, 2019
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10104192

## How later opinions describe it (automated extraction)

- holding that a client can sue attorney in tort for fraud

## Opinion text

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

PHILIP KURLANDER, M.D., an individual
BAKER HILL HOLDING, LLC, a New York
limited liability company, EDWIN M. STANTON,
an individual, and STANTON HOLDINGS, LLC, a
Delaware limited liability company,

Plaintiffs, Case No. 8:19-cv-742-T-02AEP

v.

ROBERT R. KAPLAN, an individual, ROBERT R.
KAPLAN, JR., an individual, and KAPLAN
VOEKLER CUNNINGHAM & FRANK PLC, a
Virginia professional limited liability,

Defendants.
__________________________________________/

ORDER

Plaintiffs Philip Kurlander (“Kurlander”), Baker Hill Holdings, LLC (“Baker
Hill”), Edwin M. Stanton (“Stanton”), and Stanton Holdings, LLC (“Stanton
Holdings”), sue Defendants, Robert R. Kaplan (“Kaplan”), Robert R. Kaplan, Jr.
(“Kaplan Jr.”), and the law firm of Kaplan, Voekler, Cunningham & Frank, PLC
(the “Kaplan firm”) for legal malpractice, breach of fiduciary duty, fraud, fraud in
the inducement, civil conspiracy to defraud, negligent misrepresentation, fraudulent
omission, and constructive fraud. (Dkt. 43). Before the Court are Defendants’
motions to dismiss (Dkts. 44, 45) the Amended Complaint, Plaintiffs’ responses in
opposition (Dkts. 48, 49), and Defendants’ replies (Dkts. 50, 51). For the reasons
that follow, Defendants’ motions (Dkts. 44, 45) are granted in part and denied in

part.
BACKGROUND
For purposes of this motion, the Court accepts the factual allegations in the

Amended Complaint as true. Plaintiff Kurlander and his spouse are citizens of New
York and are the sole two members of Baker Hill, a limited liability company with
its principal place of business in the State of New York. (Dkt. 43 ¶¶ 1–2). Plaintiff
Stanton is a Florida citizen and the sole member of Stanton Holdings, a Delaware

limited liability company with its principal place of business in Florida.1 Id. ¶¶ 3–4.
Defendants Kaplan and Kaplan Jr. (collectively “the Kaplans”) are father and son
who are lawyers and citizens of Virginia. Id. ¶¶ 5–6. The Kaplan firm is a limited

liability law firm with its principal place of business and citizenship in Virginia. Id.
¶ 6. The Kaplans have ownership interests in business entities in Florida and have
listed their personal addresses as being in the State of Florida in documents
associated with these corporate holdings. Id. ¶ 5. The Kaplans are principals in the

Kaplan Firm. Id. ¶ 6. The various professionals of the Kaplan firm have placed
telephone calls to Florida, sent emails that arrived in Florida, mailed documents to

1 Kurlander, Stanton, Baker Hill, and Stanton Holdings are collectively referred to as “Plaintiffs.”
Florida, sent and received wires from Florida, and immersed themselves in business
entities in Florida. Id.

Stanton and Kurlander are intelligent and accomplished individuals. Id. ¶ 13.
Kurlander is an anesthesiologist whose medical practical consumes most of his time,
but he is also a sophisticated investor. Id. Stanton has a Master’s in Business

Administration and previously worked with a large private real estate investment
company where he developed skills, contacts, and significant relationships related
to commercial real estate transactions. Id. ¶ 14. Neither Stanton nor Kurlander have
any legal training. Id. ¶ 13. After being a part of a larger organization, Stanton

branched off with co-workers and cofounded SRS Investments (“SRS”), a private
equity real estate investment firm based in Sarasota, Florida. Id. ¶ 15. During the
early stages of SRS’s existence, Stanton met Kaplan Jr. and his then law partner

Chris Hoctor, who were partners in a predecessor firm to the Kaplan Firm. Id. ¶ 16.
Stanton and Kaplan Jr. became social friends. Id.
Under Stanton’s leadership and business acumen, SRS was successful in
completing numerous real estate acquisitions and developed an emerging reputation

in the industry. Id. ¶ 17. Although Stanton initially rejected Kaplan Jr.’s advances to
provide legal work for SRS, eventually Stanton acquiesced and he moved SRS’s real
estate and securities work to Kaplan Jr. and the Hoctor Kaplan (HK) law firm. Id.

Kaplan engaged in an attorneys’ fee arrangement that was undocumented, unwritten,
and unsigned. Id. Stanton trusted Kaplan Jr., and nothing about an undocumented
representation relationship appeared to Stanton to be inappropriate. Id. ¶ 18. At no

time did Kaplan Jr. ever disclose the existence or possibility of a conflict in the
representation. Id. From 2006 until the filing of the Complaint, Kaplan Jr. and his
firm acted as the exclusive real estate, corporate, and securities attorneys for Stanton

and his various Florida-based entities. Id. ¶ 19. For a four-year period during this
time frame, Stanton lived in Chicago, and Kaplan Jr. served as his counsel for all
personal and business matters. Id. at 6 n.5.
During this time, Stanton considered the Kaplans and their respective firm to

be his “go to” attorneys. Id. ¶ 20. Because the Kaplans’ billing practices were
extremely aggressive compared to Stanton’s prior California law firm, the Kaplans
offered to resolve the fee sensitivity issue by proposing “split profit deals” in which

Kaplans would provide legal services in exchange for a share of the profits. Id. ¶ 20.
To accomplish this arrangement, EMS-CHI was formed as a special purpose equity
(“SPE”) to acquire an asset as part of this undocumented venture between Stanton
and the Kaplans. Id. Stanton and the Kaplans verbally agreed that Stanton would

source acquisitions and acquire financing and the Kaplans would provide all legal
services in exchange for an equal share of the profits when the properties were sold.
Id. Plaintiffs allege this agreement was not documented in writing. Id.
At the end of 2009, Kaplan Jr. began involving his father in his representation
of Stanton and his entities. Id. ¶ 21. The elder Kaplan holds himself out as an

experienced securities lawyer. Id. In 2012, Stanton needed both capital and legal
representation. Id. ¶ 22. To assist with the financing, the Kaplans involved their
client Kurlander who had ample access to capital. Id. The Kaplans continued to offer

their legal representation in exchange for a share of the profits. Id. A second property
was acquired with traditional financing and a loan provided by Kurlander. Id. The
Kaplans represented all parties in the transaction. Id. Kurlander converted his loan
into equity and committed additional equity to the growth of the portfolio. Id. The

EMS-CHI entity changed to Holmwood Capital. Id.
Holmwood Capital was a Delaware company with its principal place of
business in Sarasota, Florida. Id. ¶ 23. Kaplan drafted an operating agreement that

attempted to formalize the relative equity positions of Stanton, Kurlander, and the
Kaplans. Id. Kaplan provided all of the legal advice and drafting, never advising
Plaintiffs to seek independent counsel. Id. At this point in time, Stanton had a trusted
attorney-client relationship with Kaplan Jr. for nearly five years. Id.

A third SPE was formed to acquire a third property, with the Plaintiffs being
represented by the Defendants. Id. ¶ 24. The representation was undocumented, and
again, according to Plaintiffs, the Kaplans did not disclose any potential conflict of

interest. Id. As time passed, Plaintiffs and Defendants became involved in a business
that involved a conglomerate of business entities, all operating as a single common
venture (“the Venture”). Id. ¶ 25. The real estate acquisitions Stanton sourced were

all commercial real estate properties subject to long-term leases with federal
government tenants. Id.
In 2014 Defendants convinced Plaintiffs to transform the structure of

Holmwood Capital to that of a real estate investment trust (REIT). Id. ¶ 26.
Defendants also advised Plaintiffs that the management of the REIT should be
handled by a separate entity. Id. ¶ 27. Plaintiffs acquiesced and Holmwood Capital
Advisors LLC (“HCA”) was formed in July 2014, with Stanton, Kurlander, Kaplan,

and Kaplan Jr. (collectively “the Partners”) each having a 25% share Id. All
corporate documents were drafted by the Kaplans. Id. By the end of 2015,
Holmwood Capital had a seven-property portfolio. Id. ¶ 28.

Throughout this time, Defendants held themselves out as securities experts,
having played a significant role in the enactment of certain legislation involving
Regulation “A”. Id. ¶ 29. The Kaplans recommended that a new entity be formed for
purposes of taking advantage of Regulation “A” to raise capital. Id. As explained by

the Kaplans, qualification of an offering under Tier II of Regulation “A” enables
small business entities to raise capital without the full burden of being a publicly
listed company. Id. To that end, two new entities were formed—HC Government

Realty Trust, Inc. (“HC REIT”) and HC Government Realty Holdings, L.P. (“HC
Holdings”). Id. ¶ 30. HC REIT and Holmwood Capital owned and controlled HC
Holdings. Id. As structured by the Kaplans, HC REIT was the general partner of the

operating partnership, HC Holdings, with its limited partners Holmwood Portfolio
Holdings LLC (“Holmwood Portfolio”) and Holmwood Capital. Id. ¶ 31. Kurlander
agreed to the formation of HC Holdings and HC REIT with the understanding that

his fifty percent interest would provide him with significant voting control. Id. ¶ 32.
However, Kurlander’s equity interest stemming from his 80% control of Holmwood
Capital was non-voting and converted to “OP Units,” the effect of which was he lost
control because of the conversion that the Kaplans counseled him to agree to. Id.

The Kaplans also advised Kurlander and Stanton that a board of directors was
necessary, including a majority of the board being independent. Id. ¶ 33. Stanton and
Kurlander hesitantly agreed, with Kurlander, Kaplan and Stanton serving as

directors of HC REIT along with four independent directors. Id. ¶ 34. Independent
directors were primarily sourced by the Kaplans. Id. As leadership of HC REIT,
Stanton was elected chief executive officer, Kaplan Jr. appointed himself president,
Kaplan was secretary, and Kurlander was treasurer. Id.

On November 7, 2016, the Securities and Exchange Commission (“SEC”)
approved the qualification of the HC REIT’s Reg “A” securities offering. Id. ¶ 35.
HC REIT thereafter began marketing the sale of its common stock securities. Id. ¶

36. All legal advice provided by the Kaplans to the Plaintiffs was oral, and Plaintiffs
allege that at no point did the Defendants ever provide an invoice, engagement letter,
or other document memorializing the representation relationship. Id. ¶ 38.

Defendants received more than $500,000 in attorneys’ fees associated with their
legal counseling in the creation of Holmwood Capital, HC REIT, and HC Holdings.
Id. ¶ 37.

When HC REIT was first formed, Kaplan Jr. represented he had the
experience, background, and contacts to head up the equity-raising component. Id.
¶ 40. Given Kaplan Jr.’s shortfalls in this area, the Plaintiffs agreed it was necessary
for HC REIT to hire an independent third-party consultant to locate and negotiate

broker-dealer relationships that were needed to grow the Venture. Id. ¶ 41. Within
twelve months, the Kaplans began counseling the Plaintiffs that Reg “A” was a
“dead end” and an institutional investor was the way to go. Id. ¶¶ 41–42. Plaintiffs

expressed interest in investing additional capital into HCA in exchange for
additional equity, but they learned that the organizational documents included an
anti-dilution policy that precluded dilution of the Kaplans’ interests. Id. ¶ 42.
The Kaplans sought an institutional investor and ultimately negotiated a deal

with a set of investors led by Steve Hale. Id. ¶ 43. The Kaplans put down a “good
faith” deposit with their own personal funds for a deal with the Hale Partnership in
order to acquire the “Hale Package” and the Hale Partnership’s interest in assuming

control over the Venture, which Plaintiffs opposed. Id. The Kaplans called a meeting
of the HC REIT Board to discuss the Hale Package. Kurlander had submitted,
through Stanton, an alternative capital proposal referred to as the “Baker Hill

Package.” Id. ¶ 45. The HC REIT Board was deadlocked regarding the Hale Package
versus the Baker Hill Package. Id. ¶ 48. Given the deadlock, Kurlander and Stanton
entered into separate negotiations with Hale, ultimately agreeing to the “Agreed Hale

Package.” Id. ¶ 49.
An investment bank was engaged to render the fairness opinion and
purportedly an initial fairness opinion resulted in a share price significantly below
the agreed repurchase share price of $9.10. Id. ¶ 51. Stanton and Kurlander rejected

the proposed reduced share price. Id. ¶ 53. A lengthy memorandum prepared by
Elizabeth Watson, the former CFO of HC REIT (the “Watson Memorandum”)
explains in detail why the Hale Package is not favorable for HC REIT or for common

stockholders and was forwarded to the HC REIT Board on March 11, 2019. Id. ¶ 55.
The Kaplans did not disclose the Watson Memorandum despite Kaplan Jr. receiving
it a week prior. Id.
On March 12, 2019, at 10:43 a.m., Kaplan provided notice of a meeting of the

HC REIT Board to take place on March 13, 2019, at 11:15 a.m. Id. ¶ 56. On the
evening of March 12, 2019, Kaplan emailed a 121-page agenda for the next day’s
meeting. Id. ¶ 57. Among other matters, authorizing and finalizing the Hale Package,

terminating Stanton as CEO of HC REIT, and terminating Kurlander as treasurer,
were on the disputed agenda. Id. ¶ 58. The meeting took place at 11:15 a.m. on March
13, 2019, with Stanton, Kaplan, and the independent directors appearing personally

or telephonically. Id. ¶ 60. Kurlander, who was in surgery, was unable to attend. Id.
Stanton requested a continuance of the meeting given Kurlander’s unavailability and
the short notice provided for the meeting. Id. ¶ 61. No continuance was permitted,

and the HC REIT Board proceeded to vote and approve all items presented for
consideration with Stanton being the only dissenter. Id. ¶ 62. The Hale Partnership
immediately acted to disband the HC REIT Board and elect three others to the now
vacant Board positions; Kaplan Jr. remained on as president of HC REIT. Id. ¶ 64.

Plaintiffs allege the Kaplans violated the rules regulating the Florida Bar and,
to the extent Virginia law applies, the Virginia Rules of Professional Conduct by
failing to explain the inherent conflicts of trading legal services for equity in business

ventures and representing all parties involved. Id. ¶¶ 68–70. Plaintiffs claim damages
as a result of the Kaplans’ splitting profits in real estate transactions, the termination
of promised legal services, failure to obtain requisite insurance, concealing
provisions in drafted documents that favored Defendants over Plaintiffs, failing to

maintain corporate documents, endorsing the Hale Package to Plaintiffs’ detriment,
and employing abusive billing practices. Id. ¶ 72. As a result of Defendants’ alleged
actionable conduct, Plaintiffs claim they have been improperly billed approximately
$1,500,000 in legal fees and Defendants acquired several significant unearned
investments in the Venture. Id. ¶ 77.

Plaintiffs sue Defendants for professional malpractice (Count I), breach of
fiduciary duty (Count II), fraud (Count III), fraud in the inducement (Count IV), civil
conspiracy to defraud (Count V), negligent misrepresentation (Count VI), fraudulent

omission (Count VII), and constructive fraud (Count VIII). (Dkt. 43 at 45–63).
LEGAL STANDARD
To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead sufficient
facts to state a claim that is “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662,

678 (2009) (citation omitted). When considering a Rule 12(b)(6) motion, the court
accepts all factual allegations of the complaint as true and construes them in the light
most favorable to the plaintiff. Pielage v. McConnell, 516 F.3d 1282, 1284 (11th

Cir. 2008) (citation omitted). Courts should limit their “consideration to the well-
pleaded factual allegations, documents central to or referenced in the complaint, and
matters judicially noticed.” La Grasta v. First Union Sec., Inc., 358 F.3d 840, 845
(11th Cir. 2004) (citations omitted).

DISCUSSION
I. Choice of Law
“[A] federal court sitting in diversity will apply the choice of law rules for the

state in which it sits.” Manuel v. Convergys Corp., 430 F.3d 1132, 1139 (11th Cir.
2005) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). As a
preliminary matter, a court must characterize what type of legal issue a case presents.

See Grupo Televisa, S.A. v. Telemundo Commc’ns Grp., Inc., 485 F.3d 1233, 1240
(11th Cir. 2007). Once that determination has been made, then the court will apply
the choice of law rules that apply to that legal issue in the state which it sits. Id.

Under Florida law, a legal malpractice claim is an action based in tort law.
See Cowan Liebowitz & Latman, P.C. v. Kaplan, 902 So. 2d 755, 758 (Fla. 2005)
(“Florida law views legal malpractice as a personal tort . . . .”). As all the parties
seem to agree, in Florida “the rights and liabilities of the parties with respect to an

issue in tort are determined by the local law of the state which, with respect to that
issue, has the most significant relationship to the occurrence and the parties.” Bishop
v. Fla. Specialty Paint Co., 389 So. 2d 999, 1001 (Fla. 1980) (adopting the

“significant issues” test for actions in tort). The factors that a court considers in
determining which state has the most significant relationship are: “a) the place where
the injury occurred, b) the place where the conduct occurred which caused the injury,
c) the domicil, residence, nationality, place of incorporation, and place of business

of the parties, and d) the place where the relationship, if any, between the parties is
centered.” Id. In most situations, the decisive consideration is the state where the
injury occurred. Id. The Court’s analysis does not stop there, however, as the Court
must also consider additional policy considerations that underlie the choice-of-law
test.

The Court has previously undertaken a choice-of-law analysis in this case and
concluded that Virginia law applies. See Dkt. 40 at 9–13. Seemingly taking issue
with this conclusion, Plaintiffs include in their Amended Complaint new allegations

purporting to demonstrate more significant relationships between the State of Florida
and the disputes here. See, e.g., Dkt. 43 ¶¶ 5, 6, 9, 17, 78. Plaintiffs argue that Stanton
and his businesses are located in Florida, communications were received in Florida,
and several of the business entities involved have their principle place of business in

Florida. As the Amended Complaint reveals, however, Stanton lived for at least four
years during the relevant time frame in Chicago, and as previously noted, Kurlander
is a citizen of New York and Baker Hill is a New York company with its principal

place of business in New York. Thus, the citizenship of the Plaintiffs does not
necessarily support more significant relationships in Florida versus other
jurisdictions.2
Plaintiffs argue the “center of the parties’ relationship” was focused in

Florida, and that Florida has a strong interest in compensating its citizens for injuries

2 Although none of the parties argue the applicability of Delaware law to the claims pled, at least
one management agreement attached to the Amended Complaint references Delaware law. (Dkt.
43-14 at 26). This counters an expectation that only Florida law would govern the parties’
interactions.
to its legal consumers. Based on the Amended Complaint, however, the largest
financial contributor appears to have been Kurlander, a New York citizen. Thus, it

is apparent that Florida was not the only State whose citizens suffered damages.
As conceded by Plaintiffs, a state has an obvious interest in regulating the
conduct of its licensed professionals. The Kaplans are Virginia citizens and members

of the Virginia Bar. They are not licensed to practice law in Florida, and there has
been no claim of the unauthorized practice of law. The Kaplan firm is a Virginia law
firm that does not have offices in Florida. The gravamen of Plaintiffs’ claims is the
Plaintiffs’ dissatisfaction with the legal advice provided by Defendants regarding

real estate and business transactions and the failure of Defendants to disclose
potential conflicts of interest associated with the transactions and the parties’
business relationships. The actionable conduct by these Virginia lawyers occurred

in Virginia. Virginia, rather than Florida, has the greater interest in regulating the
alleged misconduct of its lawyers. See, e.g., Reichard v. Henderson, Covington,
Messenger, Newman & Thomas Co., L.P.A., No. 18-CV-61128, 2018 WL 5016285,
at *6 (S.D. Fla. Oct. 16, 2018), aff’d sub nom. Reichard v. Henderson Covington

Messenger Newman & Thomas Co., 779 F. App’x 665 (11th Cir. 2019) (finding that
“while Florida has a strong interest in protecting its citizens from professional
negligence by attorneys, its interest in regulating out-of-state conduct by out-of-state

attorneys must yield to Ohio’s interest in regulating its own attorneys’ conduct”);
LNC Inv., Inc. v. First Fidelity Bank, Nat’l Assoc., 935 F. Supp. 1333, 1350–51
(S.D.N.Y. 1996) (citations omitted) (finding a “state has a strong interest in

regulating the conduct of a law firm licensed to practice within its borders”).
Accordingly, the Court applies Virginia law to Plaintiffs’ claims.
II. Plaintiffs’ Claims

In their Amended Complaint, Plaintiffs again assert a plethora of claims
against Defendants arising out of the business and legal relationships between
Plaintiffs and Defendants. As this Court previously recognized, under Virginia law,
such claims related to misconduct in the course of an attorney-client relationship

may only be brought as a breach of contract claim, and not in tort, unless based on
an independent duty. (Dkt. 40 at 14–20).
A. Count I – Professional Malpractice

In Virginia, a claim for legal malpractice “requires the existence of an
attorney-client relationship which gave rise to a duty, breach of that duty by the
defendant attorney, and that the damages claimed by the plaintiff client must have
been proximately caused by the defendant attorney’s breach.” Smith v. McLaughlin,

769 S.E.2d 7, 13 (2015) (internal quotation marks and citations omitted). Plaintiffs
have alleged the existence of an attorney-client relationship and a breach of that
relationship. See Dkt. 43 ¶¶ 86–91. The Court previously dismissed Plaintiffs’ legal

malpractice claim for failing to adequately allege damages proximately caused by
Defendants’ alleged misconduct. (Dkt. 40 at 19). In their amended pleading,
Plaintiffs claim a loss of profits, decrease in control of the various Venture entities,

dilution of Plaintiffs’ equity, removal as directors and officers, payment of debt
without contribution of Plaintiffs, and other business and opportunity costs resulting
from Defendants’ breaches of their duties owed to Plaintiffs. (Dkt. 43 ¶ 92). In a

light favorable to the Plaintiffs, they have stated a cause of action for professional
malpractice and the motions are due to be denied as to Count I.
B. Plaintiffs’ Tort Claims Fail
Under Virginia law, an attorney-client relationship is one of contract. Oleyar

v. Kerr, 225 S.E.2d 398, 400 (Va. 1976) (“an action for the negligence of an attorney
in the performance of professional services, while sounding in tort, is an action for
breach of contract”). Accordingly, any torts committed in the course of an attorney-

client relationship must be brought as breaches of the contractual duties—whether
express or implied—of the lawyer because the contract is the sole source of duty in
the relationship. Augusta Mut. Ins. Co. v. Mason, 645 S.E.2d 290, 295 (Va. 2007)
(dismissing a redundant tort claim because “[b]ut for the existence of the [contract],

[the defendants] would [not] have owed any fiduciary duty to [the plaintiffs]”).
Thus, any tort claims based on breaches of duties owed solely because of the
attorney-client relationship must be dismissed. See, e.g., Delavan v. Simons, 94 Va.

Cir. 507 (Va. Cir. Ct. 2016) (dismissing claims for breach of fiduciary duty and
constructive fraud as being improperly brought as separate torts from the contractual
legal-malpractice claim); see also Atlas Partners II, Ltd. P’ship v. Brumberg,

Mackey & Wall, PLC, No. 4:05CV00001, 2006 WL 42332, at *8 (W.D. Va. Jan. 6,
2006) (dismissing claims for breach of fiduciary duty and fraud for the same
reasons).

In Count II, Plaintiffs sue all Defendants for breach of fiduciary duty. As
alleged, the breaches relate to performance of legal work for Defendants’ own
benefit and in conflict with and to the detriment of Plaintiffs. (Dkt. 40 ¶ 94). The
duty arises from the legal work performed. Id. ¶ 97. Accordingly, any claim for

breach of a fiduciary duty is subsumed by the professional malpractice claim and is
not an independent cause of action. The motions to dismiss are due to be granted as
to Count II.

In Count VI, Plaintiffs allege a claim for negligent misrepresentation. As
stated previously, such tort claims are subsumed within the legal malpractice claim.
Plaintiffs attempt to avoid this conundrum by alleging “[t]o the extent that the Court
finds that the Defendants were not the Plaintiffs’ counsel. . . .” (Dkt. 43 ¶ 132). The

basis of the entire Amended Complaint, however, is the Kaplans’ alleged
misconduct in the legal representation of Plaintiffs. As pled by Plaintiffs, the genesis
of the relationship was Kaplan Jr.’s efforts to have Stanton switch his legal business

to Kaplan Jr.’s law firm. Once that was accomplished, the relationship continued to
grow through various business transactions, all the while with Kaplan Jr. and then
Kaplan serving as legal counsel, drafting documents, and providing legal advice.

The allegations in Count VI arise out of and relate to the legal work performed by
Defendants, the advice given, and the documents drafted. Thus, nothing about the
allegations of Count VI lead the Court to find that an attorney-client relationship did

not exist. “The Virginia Supreme Court has long held that ‘an attorney may be
employed without formalities of any kind. The contract . . . is often largely implied
from the acts of the parties.’” Atlas Partners II, Ltd. P'ship v. Brumberg, Mackey &
Wall, PLC, No. 4:05CV00001, 2006 WL 42332, at *5 (W.D. Va. Jan. 6, 2006)

(quoting Glenn v. Haynes, 66 S.E.2d 509 (Va. 1951)). The alleged misconduct
relating to that relationship has been adequately raised in Count I, and therefore
Plaintiffs’ tort claims in Counts II and VI that are based on the same core facts fail

as a matter of law.
C. Plaintiffs’ Fraud Claims
Plaintiffs allege five variations of fraud against Defendants in the Amended
Complaint. In Counts III and IV, Plaintiffs sue the Kaplans for fraud and fraud in

the inducement. In Counts VII and VIII, Plaintiffs sue the Kaplans for fraudulent
omission and constructive fraud. Count V alleges a claim against all Defendants for
civil conspiracy to defraud. “Where a person who happens to be an attorney engages

in conduct that breaches a duty which exists outside of the attorney-client
relationship, the client may bring tort claims seeking recompense for the damages
caused by that conduct.” Hewlette v. Hovis, 318 F. Supp. 2d 332, 336 (E.D. Va.

2004) (citing Goodstein v. Weinberg, 245 S.E.2d 140 (Va. 1978) (holding that a
client can sue attorney in tort for fraud)).
This Court previously rejected Plaintiffs’ claims of fraud in the inducement,

constructive fraud, and fraudulent omission because Plaintiffs alleged the same
misconduct that arose from the attorney-client relationship and therefore those
claims were redundant of or subsumed by the professional malpractice claim. In the
Amended Complaint Plaintiffs attempt to recast these fraud claims in a different light

to avoid dismissal.
In Count IV, Plaintiffs allege that the Kaplans induced them into transacting
business and falsely misrepresenting that they were serving as Plaintiffs’ legal

counsel. For the same reasons discussed above, Plaintiffs’ allegations are internally
inconsistent and fail to state an independent cause of action. Plaintiffs assert a claim
for fraudulent inducement “to the extent that the Court finds that the Defendants
were not the Plaintiffs’ counsel.” (Dkt. 43 ¶ 113). However, all of the remaining

allegations, including those incorporated from paragraphs 1 through 85, belie a
finding that Defendants were not acting as Plaintiffs’ counsel. The ultimate criticism
in Count IV mirrors the claims of professional malpractice, that is, that Plaintiffs

have employed the Kaplans as their sole legal counsel and the Kaplans used that
relationship to make misrepresentations and provide legal advice that was to the
benefit of the Kaplans and to the detriment of the Plaintiffs.

Counts VII and VIII suffer from the same pleading deficiencies. Plaintiffs
seek a finding that the Kaplans were not serving as their counsel but incorporate all
of the general allegations establishing the attorney-client relationship. Also, as this

Court previously observed, Virginia law views claims for negligent
misrepresentation and constructive fraud as the same cause of action. Richmond
Metro. Auth. v. McDevitt St. Bovis, Inc., 507 S.E.2d 344, 347 (Va. 1998). Plaintiffs’
claims in Counts IV (fraudulent inducement), VII (fraudulent omission), and VIII

(constructive fraud) are due to be dismissed as subsumed in the professional
malpractice claim.3
This is not to say that Plaintiffs are barred from bringing any fraud claim. To

the contrary, Virginia courts have recognized that “fraud is an independent, willful
tort under Virginia law.” Hewlette, 318 F. Supp. 2d at 337 (internal citations and
quotation marks omitted). And “[t]he duty not to defraud is owed by everyone to
everyone, regardless of any special relationship between the alleged tortfeasor and

victim.” Id. The elements of actual fraud, which must be shown by clear and

3 In addition to these Counts being subsumed in Count I, it is worth noting that the allegations of
the fraud Counts are redundant among themselves alleging much of the same misconduct and
damages. Further, as discussed infra, these Counts fail to satisfy the heightened pleading
requirements of Fed. R. Civ. P. 9(b) to state a claim for fraud.
convincing evidence, are: “(1) a false representation, (2) of a material fact, (3)
intentionally and knowingly made, (4) with intent to mislead, (5) with reliance by

the party misled, (6) and with resulting damage or injury to the misled party.”
Howarth v. Rockingham Pub. Co., 20 F. Supp. 2d 959, 970 (W.D. Va. 1998) (citing
Winn v. Aleda Constr. Co., 315 S.E.2d 193 (Va. 1984)). In pleading a claim for fraud,

a plaintiff must satisfy the requirements of Federal Rule of Civil Procedure 9.
Specifically, “under Rule 9(b), Plaintiffs must allege (1) the precise statements,
documents, or misrepresentations made; (2) the time, place, and person responsible
for the statement; (3) the content and manner in which these statements misled the

Plaintiffs; and (4) what the defendants gained by the alleged fraud.” Brooks v. Blue
Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1380–81 (11th Cir. 1997) (citation
omitted).

Because fair notice is “[p]erhaps the most basic consideration”
underlying Rule 9(b), Wright & Miller, supra, § 1298, at 648, the
plaintiff who pleads fraud must “reasonably notify the defendants of
their purported role in the scheme.” Midwest Grinding [Co. v. Spitz],
976 F.2d [1016, 1020 (7th Cir.1992)]. Therefore, in a case involving
multiple defendants . . . “the complaint should inform each defendant
of the nature of his alleged participation in the fraud.” DiVittorio [v.
Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir.
1987)].

Brooks, 116 F.3d at 1381 (quoting Vicom, Inc. v. Harbridge Merchant Servs., Inc.,
20 F.3d 771, 777–78 (7th Cir. 1994)).
Where, as here, Plaintiffs have sued three Defendants, Plaintiffs are obligated
under Rule 9 to identify not only the precise statements and misrepresentations and

when and where each were made, but also must identify which Defendant made what
statement. Throughout Count III, Plaintiffs generally allege conduct by “the
Kaplans,” see, e.g., Dkt. 43 ¶¶ 101 (“Kaplans’ fraud”), 103 (“Kaplans had no

intention of disclosing”),105 (“Kaplans implored”; “Kaplans counseled”) or make
blanket, nonspecific statements about “the Defendants” without identifying which
of the three Defendants Plaintiffs are attributing the conduct. Such vague allegations
fail to satisfy the heightened pleading requirements of Rule 9. Accordingly, Count

III is due to be dismissed. The Court will permit Plaintiffs one more opportunity to
amend their fraud claim in Count III to adequately identify the misrepresentations
made, the Defendant responsible for making the statement, and each respective

Defendant’s role in the alleged fraud.
Because Plaintiffs’ fraud claim fails, Plaintiffs’ claim in Count V for civil
conspiracy to defraud necessarily fails. Rule 9(b) requires fraud to be plead with
particularity as to the “time, place, and contents of the false representations, as well

as the identity of the person making the misrepresentation and what he obtained
thereby.” Terry v. SunTrust Banks, Inc., 493 F. App’x 345, 358 (4th Cir. 2012)
(citation omitted). The allegations in Count V do not satisfy this strict pleading

requirement.
Notwithstanding the pleading deficiencies, Plaintiffs fail to state a claim for
conspiracy. The Court previously dismissed Plaintiffs’ conspiracy claim noting that

in order to have a conspiracy, there must be two or more persons or entities involved.
See Bowman v. State Bank of Keysville, 331 S.E.2d 797, 801 (Va. 1985). The
Kaplans are members and principals in the Kaplan firm and thus are not separate

distinct entities. In an effort to overcome this fact, Plaintiffs allege in the Amended
Complaint, that the Kaplans acted outside the scope of their role as partners in the
firm. However, the Kaplan firm’s liability is based on the theory of respondeat
superior in that the firm is responsible for the conduct of its employees—the

Kaplans. Plaintiffs fail to allege any independent misconduct by the firm separate
from the actions of the Kaplans. “A plaintiff alleging conspiracy must show that each
member of the conspiracy acted in concert and came to a mutual understanding to

accomplish a common and unlawful plan, and that one or more of them committed
an overt act to further it.” Id. at 357 (citation and internal quotation marks omitted).
Plaintiffs fail to state ultimate facts to support a claim for conspiracy. Accordingly
Count V is due to be dismissed.

CONCLUSION
The Court grants in part Defendants’ Motions to Dismiss (Dkts. 44, 45) and
dismisses Counts II (breach of fiduciary duty), IV (fraud in the inducement), V (civil

conspiracy to defraud), VI (negligent misrepresentation), VII (fraudulent omission),
and VIII (constructive fraud) with prejudice. The Court dismisses Count III (fraud)
without prejudice. The Court denies the motions to dismiss (Dkts. 44, 45) as to the

professional malpractice claim in Count I. If Plaintiffs choose to replead their fraud
claim, they may file a second amended complaint within twenty (20) days of the date
of this Order consistent with the rulings herein.

DONE AND ORDERED at Tampa, Florida, on December 12, 2019.
/s/ William F. Jung
WILLIAM F. JUNG
UNITED STATES DISTRICT JUDGE

COPIES FURNISHED TO:
Counsel of Record

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10104192. Public record. Not legal advice.