Holliday v. Brown Rudnick LLP

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

MARK E. HOLLIDAY, as Trustee of the LB Litigation

Trust,

19 Civ. 10925 (PAE)

Plaintiff,

-v- OPINION & ORDER

BROWN RUDNICK LLP,

Defendant.

PAUL A. ENGELMAYER, District Judge:

Plaintiff Mark E. Holliday, trustee of the LB Litigation Trust (the “Trust”) brings this

action for legal malpractice against defendant Brown Rudnick LLP (“Brown Rudnick”). Brown

Rudnick represented the Trust in Weisfelner v. Blavatnik (In re Lyondell Chem. Co.), Adv. Pro.

No. 09-1375 (Bankr. S.D.N.Y.), before the Bankruptcy Court for the Southern District of New

York, in which the Trust lost a $300 million preference claim (the “Preference Claim”) to Access

Industries Holdings, LLC (“Access”). Holliday alleges that this loss was due to Brown

Rudnick’s negligence. He accordingly brings claims against the firm under New York state law

for legal malpractice for loss of the Preference Claim, legal malpractice for lost settlement value,

and breach of fiduciary duty.

Brown Rudnick moves to dismiss the Amended Complaint (“AC”). For the reasons that

follow, the Court grants that motion in part and denies it in part. The Court sustains Holliday’s

claim of legal malpractice for loss of the Preference Claim but grants the motion as to the two

other claims.

I. Background1

A. The Parties

Plaintiff Holliday is the trustee of the Trust. AC ¶¶ 18, 23. He was appointed to succeed

Edward Weisfelner, a Brown Rudnick partner, as trustee following Weisfelner’s removal. See

id. ¶¶ 15, 23.

Defendant Brown Rudnick is the law firm that represented the Trust in the underlying

bankruptcy case, including the Preference Claim litigation. See id. at 1 & ¶ 1. It has an office in

New York, New York. Id. ¶ 24.

Non-party Lyondell Chemical Co. (“Lyondell”) was a debtor in the underlying

bankruptcy case. Id. ¶ 1. Lyondell’s holding company was LyondellBasell Industries AF S.C.A.

(“LBI”). Id. ¶ 7. The Trust was created in connection with Lyondell and LBI’s filing for

bankruptcy under Chapter 11. See id. ¶¶ 22, 29.

1 This account is drawn primarily from the Amended Complaint. Dkt. 24 (“AC”). For the

purposes of resolving Brown Rudnick’s motion to dismiss, the Court accepts all factual

allegations in the AC as true, drawing all reasonable inferences in Holliday’s favor. See Koch v.

Christie’s Int’l PLC, 699 F.3d 141, 145 (2d Cir. 2012).

In resolving a motion to dismiss, courts may consider documents attached to the complaint, those

incorporated by reference into the complaint, and those that are “integral” to the complaint, i.e.,

those that the complaint “relies heavily” on for their “terms and effect.” See DiFolco v. MSNBC

Cable LLC, 622 F.3d 104, 111 (2d Cir. 2010) (citation omitted). Courts “may also take judicial

notice of filings made in another court ‘not for the truth of the matters asserted in the other

litigation, but rather to establish the fact of such litigation and related filings.’” Holland v.

JPMorgan Chase Bank, N.A., No. 19 Civ. 233 (PAE), 2019 WL 4054834, at *3

(S.D.N.Y. Aug. 28, 2019) (quoting Kalimantano GmbH v. Motion in Time, Inc.,

939 F. Supp. 2d 392, 404 (S.D.N.Y. 2013)). The Court has thus considered several documents

from the underlying Preference Claim litigation, including the Bankruptcy Court’s summary

judgment and post-trial decisions, and the District Court’s affirmance. The AC relies extensively

on these documents in developing its malpractice claims; as such, they are integral to the

complaint, and, at minimum, properly the subject of judicial notice.

B. Lyondell’s Preferential Transfers and Filing for Bankruptcy

In December 2007, Basell B.V. (“Basell”), a Netherlands petrochemical company,

acquired Lyondell in a leveraged buyout (“LBO”). Id. ¶ 25. Basell is indirectly owned by

Access, which organized the LBO. Id. Following the LBO, Basell was renamed LBI, and

Lyondell became its subsidiary. Id. In early 2008, LBI began running into financial trouble,

and, on March 27, 2008, it and Lyondell entered into a credit agreement with Access (the

“Revolver Agreement”). Id. ¶ 26. Under that agreement, Lyondell had access to a $750 million

revolving credit facility, which it could draw upon on a day’s notice and hold until September

28, 2009, if it wished. Id.

On October 15, 2008, Lyondell borrowed $300 million from Access under the Revolver

Agreement. Id. ¶ 27. Lyondell repaid the $300 million in equal payments over the course of the

next few days, specifically on October 16, 17, and 20, 2008. Id.

On January 6, 2009, Lyondell filed for bankruptcy. Id. ¶ 28. A few months later, LBI

did the same. Id. The Trust was later created under the Chapter 11 reorganization plan of LBI

and its affiliated entities, including Lyondell. Id. ¶ 29. Weisfelner was named its first trustee.

Id. ¶ 30.

C. The Underlying Preference Claim Litigation

In July 2009, litigation relating to Lyondell and LBI’s bankruptcy commenced. See id.

¶ 31. Among the claims filed was the $300 million Preference Claim against Access.2 Id.

Sometime after its Chapter 11 plan became effective on April 30, 2010, Lyondell assigned the

2 In litigating an avoidable preference claim, a trustee seeks to recover payments made by an

insolvent debtor to a creditor soon before the debtor filed for bankruptcy. See AC ¶ 32;

11 U.S.C. § 567(b).

Preference Claim to the Trust. See id. ¶ 29. The Preference Claim proceeded to summary

judgment and later to a bench trial.

1. Summary Judgment

Brown Rudnick, on behalf of the Trust, moved for summary judgment on the Preference

Claim. Id. ¶ 41; see also Dkt. 27 (“Clark Decl.”), Ex. 14 (“SJ Op.”) at 3–6. Access cross-moved

for summary judgment based on an affirmative defense. See AC ¶ 113 n.24; SJ Op. at 6–9.

a. Brown Rudnick’s Motion for Summary Judgment

In its motion for summary judgment, Brown Rudnick argued that it had established the

elements of an avoidable preference claim, and that it was entitled to a presumption that

Lyondell was insolvent at the time of the transfers. SJ Op. at 3, 5. Under 11 U.S.C. § 547(b),

which governs preference claims, a trustee may “avoid a transfer by the debtor to a creditor

within 90 days prior to bankruptcy if the debtor was insolvent at the time of the transfer.”3 AC

¶ 32. The debtor is presumed insolvent for transfers made within those 90 days, although this

presumption can be rebutted. See id. Brown Rudnick argued that Lyondell should be presumed

insolvent, because the Preference Claim was based on Lyondell’s repayment of the $300 million

to Access within 90 days of Lyondell’s filing for bankruptcy. See AC ¶¶ 27, 40; SJ Op. at 5.

Access attempted to rebut this presumption by showing that Lyondell was in fact solvent

at the time of the transfers. See AC ¶¶ 42–44. Access did so by presenting valuations of

Lyondell, including an expert’s adjusted valuation that valued the company’s assets in October

2008 at a low-end value of $10.6 billion and a mid-point value of $12.23 billion. See id. ¶ 43.

3 In this legal malpractice action, the AC recounts relevant law pertaining to the underlying

action. The Court takes judicial notice of such case law. See Pani v. Empire Blue Cross Blue

Shield, 152 F.3d 67, 75 (2d Cir. 1998) (“It is well established that a district court may rely on

matters of public record in deciding a motion to dismiss under Rule 12(b)(6), including case law

and statutes.”).

Access also presented evidence that Lyondell’s direct liabilities were $9.1 billion. Id. ¶ 44. It

then argued that there was sufficient evidence to rebut the presumption that Lyondell was

insolvent because Lyondell’s assets exceeded its liabilities and there was a dispute as to whether

Lyondell was liable under any guarantees. Id. Significant here, Access’s calculations did not

account for an $8 billion intercompany debt that Lyondell owed. See id. ¶¶ 3, 45. A large

portion of this $8 billion debt was a $7.16 billion intercompany note, which Lyondell had filed as

an exhibit and which Access referenced only in relation to its affirmative defense. See id.

¶¶ 45, 49.

Brown Rudnick, however, did not focus on Lyondell’s stand-alone solvency, but instead

the solvency of LBI as a whole. See, e.g., id. ¶ 41. Brown Rudnick’s theory was that Lyondell

was insolvent only if LBI was also insolvent. Id. ¶ 37. The AC alleges that Brown Rudnick’s

theory was wrong. See id. ¶ 38. It further alleges that, in choosing to pursue this theory, Brown

Rudnick forewent the theory that Lyondell itself was insolvent, and therefore did not present

expert evidence at summary judgment of Lyondell’s stand-alone insolvency, id. ¶ 5, or offer

evidence of Lyondell’s $8 billion debt to other LBI entities or the intercompany note, see id.

¶¶ 41, 48. Instead, Brown Rudnick called the intercompany note “immaterial.” Id. ¶ 49. Had

Brown Rudnick advised the Bankruptcy Court of Lyondell’s $8 billion debt, the AC alleges,

Lyondell’s liabilities would have clearly outstripped its assets, entitling the Trust to the

presumption of insolvency––and summary judgment. See id. ¶¶ 4, 47, 52.

The Bankruptcy Court denied Brown Rudnick’s motion for summary judgment. See id.

¶ 52; see also SJ Op. at 5–6. It found that Brown Rudnick had established all but one element of

an avoidable preference claim: Lyondell’s insolvency.4 See SJ Op. at 4–5. As to that element, it

held that Access had rebutted the presumption of Lyondell’s insolvency, and that disputed issues

of fact remained. See AC ¶ 52; see also SJ Op. at 5–6.

At some point after trial, Brown Rudnick attorneys marked up Access’s summary

judgment briefing and wrote that Access’s valuation of Lyondell “plus $8 billion debt =

insolvent.” AC ¶ 53 (emphasis omitted).

b. Access’s Motion for Summary Judgment

Access cross-moved for summary judgment, asserting the “ordinary course” affirmative

defense. See id. ¶ 113 n.24; see also SJ Op. at 8. For this defense to succeed, a transferee must

show that “the debt (1) was incurred ‘in the ordinary course of business or financial affairs of the

debtor and the transferee’ and (2) was repaid ‘in the ordinary course of business or financial

affairs of the debtor and the transferee’ or pursuant to ordinary business terms.” AC ¶ 114

(quoting 11 U.S.C. § 547(c)(2)).

Access argued that Lyondell had drawn on the Access credit facility according to the

terms of the Revolver Agreement, and that Lyondell had incurred and repaid the debt in its

ordinary course of business. See id. ¶ 115; SJ Op. at 8.

The Bankruptcy Court denied summary judgment to Access on this claim, finding that

unresolved issues of fact precluded summary judgment. AC ¶ 113 n.24; SJ Op. at 8–9.

2. Trial

In 2016, the Bankruptcy Court held a bench trial on the Preference Claim, along with the

other remaining claims. AC ¶ 31. In pursuing malpractice claims against Brown Rudnick, the

4 The Bankruptcy Court also noted that there was a disputed issue of fact related to the threshold

question of whether the transferred property was in fact Lyondell’s. SJ Op. at 5.

AC highlights two aspects of the trial: (1) the failure to offer evidence of Lyondell’s stand-alone

insolvency, and (2) the improper valuation of LBI. Access again asserted its affirmative defense.

a. Lyondell’s Insolvency

At trial, Brown Rudnick did not argue that the presumption of insolvency was applicable.

See id. ¶ 54. Instead, it waived the presumption, stating that it was the Trust’s burden to prove

insolvency. Id.

As during the summary judgment stage, Brown Rudnick continued to focus on LBI’s

insolvency, rather than that of Lyondell. See id. ¶¶ 35–37. Brown Rudnick analyzed only LBI’s

balance sheet, rather than Lyondell’s, and did not consider Lyondell’s assets and liabilities on

their own terms. See id. ¶¶ 7, 58. Along these lines, the AC faults Brown Rudnick for not

presenting evidence of Lyondell’s intercompany debt or expert testimony as to Lyondell’s

insolvency. See id. ¶¶ 35–36, 75.

First, it alleges, Brown Rudnick did not gather or present evidence of Lyondell’s

stand-alone insolvency. Id. ¶ 35. Nor did Brown Rudnick present evidence of Lyondell’s $8

billion debt, including the $7.16 billion intercompany note. See id. ¶¶ 65, 75. These debts, the

AC alleges, could have been added to Access’s own calculations of Lyondell’s balance sheet to

demonstrate Lyondell’s insolvency. See, e.g., id. ¶¶ 4, 74.

Second, Brown Rudnick retained an expert, Anders Maxwell, but did not instruct

Maxwell to value Lyondell. See id. ¶ 36. Instead, Maxwell was asked to provide––and

provided––an opinion only as to LBI. Id. Brown Rudnick proposed to call Maxwell to testify to

Lyondell’s stand-alone insolvency. See id. ¶ 61. But, because Maxwell had not disclosed any

opinion as to Lyondell’s insolvency before trial, the Court excluded Maxwell’s opinions on that

subject. Id. As a result, no experts testified specifically to Lyondell’s insolvency. Id. ¶¶ 36–37.

b. Valuation of LBI

As to the valuation of LBI, the AC alleges that Brown Rudnick made another misstep: It

used data from December 2008 to prove that LBI was insolvent in October 2008. Id. ¶ 82.

The case law requires a trustee who seeks to prove insolvency using evidence from dates

other than the date of the alleged transfer––here, Lyondell’s $300 million transfer––to

demonstrate that the debtor’s financial condition did not materially change between such date

and the date of transfer. See id. ¶ 83. But, the AC alleges, with regard to the December 2008

data, Brown Rudnick did not do so. See id. ¶¶ 84–85. LBI’s financial position declined

substantially between October 2008 and December 2008, due to the Great Recession––a point

Maxwell acknowledged at trial. Id. ¶ 85. And Brown Rudnick presented no evidence suggesting

that LBI’s financial position remained the same during that time period. See id.

In an attempt to justify the use of the December 2008 projections, Maxwell, in his expert

report, wrote that these projections were “developed during the 2nd half of 2008 and available in

October.” Id. ¶ 88. The AC alleges that this contention lacked factual support. Id. ¶ 89.

Further, the AC alleges, better data was available, which Brown Rudnick did not use.

Specifically, there were financial projections from April 2008. See id. ¶ 93. Under these,

Lyondell was insolvent in April 2008, and there is no dispute that its financial position worsened

between then and October 2008. Id. ¶ 94. However, Brown Rudnick did not use the April 2008

projections to prove LBI or Lyondell’s insolvency. See id. ¶ 95.

c. Access’s Affirmative Defense

At trial, Access asserted the ordinary-course affirmative defense. See In re Lyondell

Chem. Co. (“Lyondell I”), 567 B.R. 55, 121 (Bankr. S.D.N.Y. 2017) (Bankruptcy Court’s post-

trial opinion). Access argued that the Revolver Agreement was ordinary both for Lyondell and

Access. AC ¶ 115. But Access did not offer direct evidence at trial that it commonly provided

loans to its affiliates, that Lyondell had access to other revolving lines of credit, or that Lyondell

drew on the Access line of credit before October 2008. See id. ¶¶ 115–17. The evidence showed

that Access declined to fund an attempt by Lyondell to draw on the line of credit in December

2008. Id. ¶ 117.

3. Post-Trial Briefing and Closing Arguments

In its post-trial briefing, Brown Rudnick argued––for the first time––that it was the

solvency of Lyondell, not LBI, that mattered. Id. ¶¶ 6, 56. Specifically, it attempted to

extrapolate Lyondell’s valuation in October 2008 from a December 2007 valuation of LBI. See

id. ¶ 63. And because it had not introduced evidence of Lyondell’s $8 billion debt or the

intercompany note at trial, it tried to prove the existence of an “$8.0 billion Related Party Note”

through reference to Lyondell’s securities filings. See id. ¶ 65. But, having failed to direct

Maxwell to value Lyondell alone, Brown Rudnick could not point to any expert opinion or other

facts from trial to prove Lyondell’s stand-alone insolvency. See id. ¶¶ 62–63.

During closing argument following the post-trial submissions, the Bankruptcy Court

expressed confusion about the existence of the $8 billion debt and the intercompany note. See id.

¶ 67 (“THE COURT: It wasn’t a note; it was––was it a––is there a note––[.] MR. POHL: Yes

. . . there’s a note. I don’t have the note[.]”). The Bankruptcy Court also repeatedly questioned

Brown Rudnick as to whether Maxwell considered the $8 billion debt in his solvency analysis.

See id. ¶ 68. Brown Rudnick confirmed that he did not. See id.

After closing argument, Brown Rudnick submitted a letter addressing the $8 billion debt

and arguing that it was relevant to the Lyondell’s solvency analysis. Id. ¶ 69. Access responded,

pointing out that Brown Rudnick had focused on LBI’s solvency at trial; never offered a

stand-alone valuation or expert opinion on Lyondell; never introduced the intercompany note

into evidence; and characterized the intercompany note as “immaterial” to solvency during the

summary judgment briefing. See id. ¶ 71.

4. Bankruptcy Court Decision

On April 21, 2017, the Bankruptcy Court issued its findings of fact and conclusions of

law. See generally Lyondell I, 567 B.R. 55. The Bankruptcy Court held that the Trust had failed

to prove by a preponderance of the evidence that LBI or Lyondell was insolvent at the time

Lyondell transferred the $300 million in October 2018. See id. at 148–49; see also AC ¶¶ 57, 64, 75.

a. Lyondell’s Insolvency

The Bankruptcy Court emphasized that Lyondell was the relevant debtor for purposes of

the Preference Claim. See Lyondell I, 567 B.R. at 148. It noted, however, that “[t]he Trustee

chose not to present specific evidence of Lyondell’s stand-alone insolvency at trial.” Id. at 107;

see also id. at 149; AC ¶ 35. As a result, the Bankruptcy Court found that the Trust had not

presented sufficient evidence of Lyondell’s insolvency. See Lyondell I, 567 B.R. at 148–49.

Because Brown Rudnick had focused on LBI––not Lyondell––as the relevant debtor throughout

the trial, the only evidence the Bankruptcy Court could look to for Lyondell’s insolvency was

Maxwell’s testimony. See id.; see also id. at 148 (“The Trustee did not argue that Lyondell (as

opposed to LBI) was the relevant debtor for the preference claim until his post-trial briefing and

closing arguments.”). However, the Court found Maxwell not credible and declined to

“extrapolate Lyondell’s stand-alone insolvency based on Maxwell’s unreliable testimony.” See

id. at 149; see also id. at 106–07 (explaining reasons for finding Maxwell not credible). In so

concluding, the Bankruptcy Court emphasized, “[i]t bears repeating that the Trustee changed

course on this issue at the eleventh hour, after arguing for the entire trial that LBI was the

relevant entity” for the solvency determination. See id. at 149; see also id. at 107.

b. LBI’s Valuation

The Bankruptcy Court also opined on Maxwell’s valuation of LBI, including his use of

data from December 2008. As to the variance in LBI’s financial position between October and

December 2008, the Bankruptcy Court found that “Maxwell’s use of the 2008 LRP Projections,

which were not finalized and presented until December 2008, is unpersuasive as to LBI’s

financial condition two months earlier in mid-October 2008, in light of the substantial

deterioration in LBI’s financial performance thereafter.” Id. at 105; see also AC ¶ 87.

The Bankruptcy Court also rejected Maxwell’s contention that the December 2008

projections were available in October of that year. See Lyondell I, 567 B.R. at 65. It noted that

Brown Rudnick did not offer evidence of any draft projections from October. Id. at 65, 105.

The Bankruptcy Court pointedly stated that “it strains credulity to believe that LBI would have

fully drafted its projections in October (without producing any record of such drafts), watched

the Great Recession begin to unfold all around it, discussed in December the dramatic decline of

its business, and yet used the exact same numbers it drafted in October without a single change

to reflect the economic decline of the last two months.” Id. at 65; see also AC ¶ 90.

Without reliable evidence of Lyondell or LBI’s insolvency in October 2008, the

Bankruptcy Court held that the Trust had not proved that Lyondell’s transfers to Access were an

avoidable preference. Lyondell I, 567 B.R. at 148–49; see also AC ¶ 91.

The AC alleges that but for Brown Rudnick’s negligence in analyzing the wrong debtor

(LBI) and the wrong date (December 2008) in the insolvency inquiry, the Trust would have

prevailed. See AC ¶¶ 110–12.

c. Access’s Affirmative Defense

The Bankruptcy Court did not address Access’s affirmative defense in its post-trial

decisions because it found that the Trust had not proved Lyondell’s insolvency, making an

affirmative defense unnecessary. See Lyondell I, 567 B.R. at 121; see also AC ¶ 113 n.24.

Nevertheless, the AC alleges that, given the lack of evidence and the nature of this quick loan

and repayment, Access failed to establish its affirmative defense at trial. See AC ¶¶ 116–17.

5. Appeal

After losing the Preference Claim, Brown Rudnick appealed and enlisted the help of

Kellogg, Hansen, Todd, Figel & Frederick PLLC (“Kellogg Hansen”) for that appeal. Id. ¶ 76.

Brown Rudnick admitted to Kellogg Hansen that it would have succeeded at summary judgment

had it relied upon the intercompany note. Id. ¶ 78. In communications with Kellogg Hansen,

Brown Rudnick partners stated the following:

• Their realization about the importance of the $8 billion debt was “too little, too late,” id.

¶ 80;

• “the computations that Access presented [at summary judgment] were carried out without

reference to the $8bb intercompany claim,” id. ¶ 79 (alteration in original) (brackets and

emphasis omitted);

• “[t]he computations done to show LYO [Lyondell] was insolvent, even on the best case

(to be confirmed), would fail and show insolvency once the $8bb IC claim is added,” id.

(second alteration in original) (emphasis omitted);

• “Quinn [counsel to Access] comes up with a best case for LCC [Lyondell] standalone and

how much ‘solvency’ cushion there is all of that was done excluding the $8bb––which, if

included, I think absorbs all the cushion,” id. (alteration in original);

• “notion that if LBI is solvent, LCC must be too—wrong based on 8 bb!!” id. (brackets

and emphasis omitted);

• “with record evidence of LCC standalone debt of over 21bb, this evidence supports it not

being a close call for LCC,” id. (brackets and emphasis omitted); and

• “[i]ssues of [Lyondell’s] share of contingent liabilities are not germane one [sic] you add

in the 8BB interco,” id. (second alteration in original).

On appeal, Brown Rudnick’s primary argument concerned the presumption of

insolvency. AC ¶ 104. It argued that Access had the burden to rebut the presumption of

insolvency at trial and failed to do so. Id. On January 24, 2018, the Hon. Denise Cote of the

Southern District of New York rejected this contention and affirmed the Bankruptcy Court’s

decision on the Preference Claim. See In re Lyondell Chem. Co. (“Lyondell II”), 585 B.R. 41,

60–62 (S.D.N.Y. 2018); see also AC ¶¶ 103–04. Judge Cote stated that Brown Rudnick had “not

only failed to bring this alleged error to the attention of the bankruptcy court, but also

affirmatively agreed that the defendants had no obligation to produce any evidence establishing

solvency, necessarily implying that the statutory presumption had been vitiated.” Lyondell II,

585 B.R. at 60; see also AC ¶ 104.

With regard to Lyondell’s insolvency, Judge Cote observed that “the focus of the trial”

was LBI’s solvency, not Lyondell’s.5 See Lyondell II, 585 B.R. at 61; see also AC ¶ 105. She

noted, too, that Maxwell expressed no opinion as to Lyondell’s stand-alone valuation. See In re

Lyondell, 585 B.R. at 61; see also AC ¶ 105. She held that Brown Rudnick had “altogether

failed” to demonstrate Lyondell’s insolvency in 2008, commenting that this was “not surprising

in light of the focus of the Trustee below on Maxwell’s testimony, and on proving the insolvency

5 On appeal, Brown Rudnick did not focus on the $8 billion debt. AC ¶ 107. Judge Cote

therefore addressed other non-expert evidence that Brown Rudnick had referenced in its briefing

and rejected those as insufficient to show that Lyondell was insolvent. See Lyondell II, 585 B.R.

at 63–64; id. ¶ 108.

of LBI rather than Lyondell on a stand-alone basis.” Lyondell II, 585 B.R. at 64; see also AC

¶ 109.

Judge Cote also considered the Bankruptcy Court’s finding that the December 2008

projections used by Maxwell in valuing LBI did not accurately reflect LBI’s financial position in

October 2008. See Lyondell II, 585 B.R. at 62. She affirmed this finding, explaining that it was

based on the Bankruptcy Court’s “careful evaluation of and intimate familiarity with the

record[.]” Id.

D. Relations Between Brown Rudnick and the Trust

Neither Brown Rudnick nor Weisfelner advised the Trust’s Advisory Board that Brown

Rudnick had blundered in pursuing the Preference Claim, including by failing to introduce

evidence to maintain the presumption of insolvency, by failing to present an expert opinion on

Lyondell’s insolvency alone, and by using the wrong dates for its valuation of LBI. See AC

¶¶ 99, 100–01. Had Brown Rudnick been transparent about its negligence, that would have

informed the Trust’s settlement discussions with Access, which took place before, during, and

after the trial. Id. ¶¶ 97–98. The AC alleges that, had Brown Rudnick given candid advice on

these matters, in late 2016 and early 2017, the parties could have settled. Id. ¶ 102.

On July 31, 2018, a beneficiary of the Trust informed the Trust’s Advisory Board that the

beneficiary believed the Trust had viable malpractice claims against Brown Rudnick. Id. ¶ 120.

The beneficiary offered to purchase the claims from the Trust, and demanded that, if that offer

were not accepted, the Trust Advisory Board appoint an independent trustee to evaluate the

malpractice claims; Weisfelner, as a Brown Rudnick partner, was conflicted. Id. The Trust

Advisory Board retained counsel, who advised that the Trust had viable claims. Id. ¶ 121. The

board then removed Weisfelner. Id.

After Holliday succeeded Weisfelner as trustee, Brown Rudnick and Weisfelner refused

to turn over the Trust’s client file to Holliday. See id. ¶¶ 16, 122–24. Brown Rudnick contended

that to get the file, the Trust would have to pay a large sum to facilitate Brown Rudnick’s

privilege and relevance review. Id. ¶ 122. The Trust offered to pay $25,000. Id. ¶ 123. Brown

Rudnick has not produced any documents from the file. Id.

E. Procedural History of This Litigation

On November 26, 2019, Holliday commenced this action by filing the initial complaint.

Dkt. 1. On January 15, 2020, Brown Rudnick moved to dismiss. Dkts. 12–14. On January 16,

2020, the Court ordered Holliday to either amend his complaint or oppose the motion to dismiss.

Dkt. 16. On February 5, 2020, Holliday amended his complaint. AC. On February 26, 2020,

Brown Rudnick filed the present motion to dismiss, Dkt. 25, along with a memorandum of law in

support, Dkt. 26 (“Def. Mem.”), and the declaration of Christopher J. Clark, Esq., Dkt. 27

(“Clark Decl.”), and its attached exhibits. On March 11, 2020, Holliday filed his memorandum

in opposition, Dkt. 30 (“Pl. Mem.”), and the declaration of Joshua J. Bruckerhoff, Esq.,

(“Bruckerhoff Decl.”), and its attached exhibit. On March 18, 2020, Brown Rudnick filed its

reply. Dkt. 32 (“Def. Reply”).

II. Applicable Legal Principles

A. Rule 12(b)(6)

To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead “enough

facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,

550 U.S. 544, 570 (2007). A claim will only have “facial plausibility when the plaintiff pleads

factual content that allows the court to draw the reasonable inference that the defendant is liable

for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint is

properly dismissed where, as a matter of law, “the allegations in a complaint, however true,

could not raise a claim of entitlement to relief.” Twombly, 550 U.S. at 558.

For the purpose of resolving a motion to dismiss, the Court must assume all well-pled

facts to be true, drawing all reasonable inferences in favor of the plaintiff. See Koch, 699 F.3d

at 145. That tenet, however, “is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. A

pleading that offers only “labels and conclusions” or “a formulaic recitation of the elements of a

cause of action will not do.” Twombly, 550 U.S. at 555.

III. Discussion

The AC brings three state-law claims against Brown Rudnick: (1) legal malpractice for

loss of the $300 million Preference Claim; (2) legal malpractice for the lost settlement value

related to the Preference Claim; and (3) breach of fiduciary duty for refusing to turn over the

Trust’s client file. Brown Rudnick moves to dismiss all three claims. The Court addresses the

legal malpractice claims, followed by the breach of fiduciary duty claim.

A. Legal Malpractice

1. Applicable Legal Principles

“In a diversity action based on attorney malpractice, state substantive law . . . applies.”

Nordwind v. Rowland, 584 F.3d 420, 429 (2d Cir. 2009) (quoting Rubens v. Mason (“Rubens

II”), 527 F.3d 252, 254 (2d Cir. 2008)). Here, both parties apply New York law in their

submissions, and the Court agrees that such law applies: Where “[t]he parties’ briefs assume that

New York law controls . . . such ‘implied consent . . . is sufficient to establish choice of law.’”

Wolfson v. Bruno, 844 F. Supp. 2d 348, 354 (S.D.N.Y. 2011) (alterations in original) (quoting

Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000)).

For a claim of legal malpractice under New York law, a plaintiff must allege:

“(1) attorney negligence; (2) which is the proximate cause of a loss; and (3) actual damages.”

Nordwind, 584 F.3d at 429 (emphasis and citation omitted); accord Ocean Ships, Inc. v. Stiles,

315 F.3d 111, 117 (2d Cir. 2002) (describing elements as “(1) a duty, (2) a breach of the duty,

and (3) proof that the actual damages were proximately caused by the breach of the duty.”

(quoting Tinelli v. Redl, 199 F.3d 603, 606 (2d Cir. 1999))).

As to the attorney negligence element, “to show negligence in a legal malpractice case, a

plaintiff must allege that the attorney’s conduct ‘fell below the ordinary and reasonable skill and

knowledge commonly possessed by a member of the profession.’” Capogrosso v. Lecrichia,

No. 07 Civ. 2722 (BSJ), 2010 WL 2076962, at *5 (S.D.N.Y. May 24, 2010) (quoting Achtman v.

Kirby, McInerney & Squire, LLP, 464 F.3d 328, 337 (2d Cir. 2006)). A plaintiff, however, fails

to state a claim for malpractice if he alleges only an “error of judgment” or a “selection of one

among several reasonable courses of action.” Achtman, 464 F.3d at 337 (quoting Rosner v.

Paley, 65 N.Y.2d 736, 738 (1985)).

As to the causation element, the Second Circuit has explained that “[t]o establish

proximate cause, ‘the client must meet a case within a case requirement,’” Rubens II, 527 F.3d

at 255 (internal quotation marks and citation omitted), and “must demonstrate that a reasonable

fact-finder could conclude that a ‘reasonable fact-finder in the underlying suit would have

arrived at a different result but for the attorney’s negligence,’” id. (quoting Rubens v. Mason

(“Rubens I”), 387 F.3d 183, 189 (2d Cir. 2004)). See also D’Jamoos v. Griffith,

340 F. App’x 737, 739 (2d Cir. 2009) (“[A] plaintiff must show that but for the defendant’s

negligence, . . . he would have prevailed in the underlying action or would not have sustained

any damages.” (quoting Allianz Ins. Co. v. Lerner, 416 F.3d 109, 118 (2d Cir. 2005))); Dweck

Law Firm, LLP v. Mann, 727 N.Y.S.2d 58, 59–60 (1st Dep’t 2001) (“[T]he client must plead

specific factual allegations establishing that but for counsel’s deficient representation, there

would have been a more favorable outcome to the underlying matter.”).

As noted, the final element of a malpractice claim is damages: A plaintiff must

demonstrate he “suffered actual and ascertainable damages.” Rubens I, 387 F.3d at 189

(citing McCoy v. Feinman, 99 N.Y.2d 295, 301–02 (2002)).

2. Loss of Preference Claim

The AC alleges that Brown Rudnick committed malpractice in losing the Preference

Claim, specifically in its performance at summary judgment and during trial. Brown Rudnick

does not appear to contest that the AC adequately pleads damages. It argues that the AC fails to

adequately plead (1) attorney negligence or (2) proximate causation.

a. Attorney Negligence

The AC alleges that Brown Rudnick was negligent in (i) its focus on LBI, not Lyondell,

as the relevant debtor; (ii) its failure to introduce evidence of Lyondell’s $8 billion intercompany

debt, including the $7.16 billion intercompany note; (iii) its failure to introduce expert testimony

to value Lyondell; and (iv) its use of December 2008 data as the basis for its valuation of LBI in

October 2008. Brown Rudnick’s principal counter is that its decisions were reasonable strategic

decisions in the context of this suit and the broader bankruptcy litigation. See, e.g., Def. Mem.

at 9.

Brown Rudnick is correct that “allegations that amount to nothing more than plaintiff’s

‘dissatisfaction with strategic choices . . . do not support a malpractice claim as a matter of law.’”

Hatfield v. Herz, 109 F. Supp. 2d 174, 180 (S.D.N.Y. 2000) (alteration in original) (quoting

Bernstein v. Oppenheim & Co., 554 N.Y.S.2d 487, 490 (1st Dep’t 1990)); see also Estate of Re

v. Kornstein Veisz & Wexler, 958 F. Supp. 907, 921 (S.D.N.Y. 1997) (“An attorney cannot be

held liable for malpractice for reasonable discretion exercised during the course of a litigation.”);

Brookwood Cos. v. Alston & Bird LLP, 49 N.Y.S.3d 10, 15 (1st Dep’t 2017) (“Decisions

regarding the evidentiary support for a motion or the legal theory of a case are commonly

strategic decisions and a client’s disagreement with its attorney’s strategy does not support

a malpractice claim, even if the strategy had its flaws.”). That is because under the attorney

judgment rule, an attorney’s choice between reasonable actions does not constitute malpractice,

including “[a]n attorney’s reasonable decisions relating to such matters as cross-examination,

witness presentation, and brief writing[.]” Estate of Re, 958 F. Supp. at 923 (emphasis added).

To be entitled to protection under that rule, “an attorney must offer a ‘reasonable strategic

explanation’ for the alleged negligence.” Ackerman v. Kesselman, 954 N.Y.S.2d 103, 106

(2d Dep’t 2012) (quoting Pillard v. Goodman, 918 N.Y.S.2d 461, 463 (1st Dep’t 2011)); see also

Brown Rudnick, LLP v. Surgical Orthomedics, Inc., No. 13 Civ. 4348 (JMF), 2014 WL 3439620,

at *7 (S.D.N.Y. July 15, 2014). However, where it is plausible that the attorney did not act in a

strategic or reasonable manner, dismissal is not appropriate. Cf. Hatfield, 109 F. Supp. 2d at 180

(at summary judgment, “[f]indings of fact are unnecessary where a court concludes that an

attorney’s conduct was ‘reasonable . . . as a matter of law’” (quoting Bernstein, 554 N.Y.S.2d

at 489)).

Construing the facts in Holliday’s favor, the AC has plausibly pled that Brown Rudnick’s

decisions were neither strategic nor reasonable.

The Court first considers the allegations in the complaint. See Ackerman, 954 N.Y.S.2d

at 105–06 (denying motion to dismiss where complaint alleged that there was “no apparent

strategic reason” for attorney’s decision); cf. Brookwood Cos., 49 N.Y.S.3d at 15 (dismissing

malpractice claim because complaint did not include facts to support plaintiff’s claim that

attorney’s evidentiary decision was unreasonable). On the face of the AC, Holliday alleges that

there was no reasonable strategic basis for Brown Rudnick to focus on LBI alone, to fail to

introduce evidence––before closing argument or post-trial motions––related to Lyondell’s

stand-alone insolvency, or for its use of the December 2008 data. See, e.g., AC ¶¶ 11, 38, 58

(focus on LBI alone unreasonable); id. ¶¶ 39, 50, 75 (failure to introduce evidence, including

expert evidence, of Lyondell insolvency unreasonable); id. ¶¶ 9, 11 (use of December 2008 data

unreasonable).

The Court next looks to the reasons Brown Rudnick offers, in its memorandum, for these

choices. Brown Rudnick argues that its focus on LBI alone was a viable strategy because it

sidestepped issues of whether Lyondell could be insolvent if LBI was solvent and enabled a

more cohesive narrative focused on LBI’s alleged insolvency. See Def. Mem. at 11–12. As to

evidence of Lyondell’s intercompany debt, Brown Rudnick contends that it was not required to

formally offer the intercompany note into evidence, and that it did acknowledge the note in

post-trial briefing and closing arguments. See id. at 13; see also id. at 16. Further, it argues that

Maxwell’s focus on LBI instead of Lyondell was simply a continuation of Brown Rudnick’s

reasonable strategy of treating LBI as the relevant debtor. See id. at 17. Finally, Brown Rudnick

contends that Maxwell’s use of the December 2008 data to assess LBI’s financial position in

October 2008 was reasonable and within his expert discretion, given that no financial projections

from October 2008 existed and that he had determined that the April 2008 projections were

unreliable. See id. at 17–19.

The AC pleads facts that substantially challenge each of these stated justifications,

making each a fair ground for discovery and requiring denial of the motion to dismiss.

First, as to Brown Rudnick’s focus on LBI and failure to offer evidence of Lyondell’s

stand-alone insolvency, the AC alleges that Brown Rudnick’s own attorneys made contradictory

statements on this point. For example, the AC alleges that a Brown Rudnick partner told

Kellogg Hansen attorneys that the “notion that if LBI is solvent, LCC [Lyondell] must be too––

wrong based on 8 bb!!” AC ¶ 79 (alteration in original) (emphasis omitted). And another

partner stated that Brown Rudnick’s realization of the importance of the $8 billion debt, on

which it did not focus until post-trial briefing and closing argument, was “too little, too late.” Id.

¶ 80 (emphasis omitted). Along these same lines, the AC alleges that Brown Rudnick partners

admitted that “[t]he computation done to show LYO [Lyondell] was insolvent, even on the best

case (to be confirmed), would fail and show insolvency once the $8bb IC claim is added”;

Access’s counsel came up with the “best case for LCC [Lyondell] standalone and how much

‘solvency’ cushion there is all of that was done excluding the $8bb––which, if included, I think

absorbs all the cushion”; and “[i]ssues of [Lyondell’s] share of contingent liabilities are not

germane one [sic] you add in the 8BB interco.” Id. ¶ 79 (alterations in original) (emphasis

omitted); see also id. ¶ 53 (Brown Rudnick attorney’s later note on Access’s summary judgment

valuation of Lyondell: “plus $8 billion debt = insolvent” (emphasis omitted)). Brown Rudnick

partners further recognized that when this debt was accounted for, the “evidence supports it not

being a close call for LCC.” Id. ¶ 79 (emphasis omitted).

Next, as to the December 2008 data, the factual allegations in the AC make it a question

of fact whether Brown Rudnick’s use of that data was reasonable. As Holliday points out, the

Bankruptcy Court found that reliance on the December 2008 projections may have been

“independently fatal” to the Preference Claim. Lyondell I, 567 B.R. at 65. And although

Maxwell allegedly determined that the April 2008 data was unreliable for his valuation of LBI,

the AC alleges that the April 2008 projections prove that Lyondell was insolvent at the time—

and remained insolvent in October 2008. AC ¶ 94.

Even though counsels’ theories of the case and evidentiary calls are often protected as

strategic, courts have denied motions to dismiss where attorneys have not presented convincing

explanations for such a decision. See, e.g., Brown Rudnick, LLP, 2014 WL 3439620, at *8

(failure to present expert testimony); Pillard, 918 N.Y.S.2d at 463 (failure to introduce

evidence). Considering the AC’s allegations alongside Brown Rudnick’s proffered reasons for

its litigation choices, there are, at minimum, questions of fact as to whether Brown Rudnick

deliberately made such choices and whether those choices were reasonable. See, e.g., Camarda

v. Danziger, Bangser & Weiss, 561 N.Y.S.2d 233, 233–34 (1st Dep’t 1990) (denying motion to

dismiss because questions of fact existed as to whether attorneys acted reasonably in failing to

advise plaintiff as to consequences of LBO); cf. Prout v. Vladeck, 371 F. Supp. 3d 150, 159

(S.D.N.Y. 2019) (denying summary judgment for attorney where there was “a genuine dispute as

to whether [the law firm’s] conduct fell within the range of ‘reasonable courses of action’ that

would immunize it from malpractice liability” (citation omitted)). As such, the Court finds the

AC has adequately pled attorney negligence as to the loss of the Preference Claim.

b. Causation

Defendants next argue that the AC does not adequately plead that Brown Rudnick’s

errant decisions proximately caused the Trust’s injuries. See Def. Mem. at 19–21. As noted, to

allege proximate causation, a plaintiff must allege “that but for the defendant’s negligence, he or

she would have prevailed in the underlying action or would not have sustained any damages.” In

re Joseph DelGreco & Co., 535 F. App’x 31, 33 (2d Cir. 2013) (quoting Allianz, 416 F.3d at

118). The AC has more than done so.

The AC first alleges that the Trust would have prevailed at summary judgment had

Brown Rudnick introduced evidence of Lyondell’s enormous intercompany debt. AC ¶ 52; see

also id. ¶¶ 110, 112. Had Brown Rudnick done so, it alleges, the Bankruptcy Court would have

found Lyondell to be insolvent because, even on Access’s calculations, Lyondell’s liabilities

(around $16.2 billion, including the intercompany debt) would have clearly outstripped its assets

(around $12.23 billion). See id. ¶¶ 46–47. It is plausible, with that evidence, that the Bankruptcy

Court would no longer have found that Lyondell’s solvency was a disputed question of fact.

The AC next alleges that but for Brown Rudnick’s myopic focus on LBI and its failure to

introduce evidence of Lyondell’s insolvency––both as to Lyondell’s debts and expert testimony

of its valuation––the Trust would have succeeded at trial. Id. ¶¶ 75, 111–12. Factual support

clearly exists for these claims. The Bankruptcy Court held that the Preference Claim analysis

should be limited to Lyondell, and that Brown Rudnick’s lawyering had hamstrung the Trust by

focusing uniquely on LBI until post-trial briefing and argument. See Lyondell I, 567 B.R.

at 148–49. Because Brown Rudnick had “argu[ed] for the entire trial that LBI was the relevant

entity,” the only evidence it had introduced that was potentially relevant to Lyondell’s

insolvency was Maxwell’s testimony as to LBI’s valuation. Id. at 149. The Bankruptcy Court

declined to extrapolate Lyondell’s insolvency from that valuation, which it found unreliable. Id.

The AC thus plausibly alleges that had Brown Rudnick earlier introduced evidence of, and relied

throughout on, Lyondell’s $8 billion debt at trial, the Trust would have succeeded at trial.

The AC also independently alleges that Brown Rudnick and Maxwell’s error in using the

December 2008 data to value LBI in October 2008 caused the Trust to lose the Preference Claim.

See AC ¶ 82 (calling this an “equally fatal mistake”); see also id. ¶¶ 110, 112. This allegation

draws support from the Bankruptcy Court itself, which held that the use of the December 2008

data was “unpersuasive,” and, while noting other problems with Maxwell’s credibility, found

that this defect was likely “independently fatal” to the claim. Lyondell I, 567 B.R. at 65, 105.

The AC then alleges Brown Rudnick could have used data from April 2008, which showed

Lyondell to be insolvent, to demonstrate Lyondell’s insolvency in October 2008, and that its

failure to do so caused the Trust to lose the Preference Claim. AC ¶ 95. Construing the facts in

Holliday’s favor, one could reasonably infer that without the December 2008 data, the

Bankruptcy Court may have found Maxwell’s valuation––the main piece of evidence introduced

as to the insolvency of LBI and, by extension, of Lyondell––more reliable.

Brown Rudnick makes two arguments to counter Holliday’s claims that its lawyering

caused injury.

First, Brown Rudnick relies on a statement from the Bankruptcy Court, which, it

contends, shows that Brown Rudnick could succeed only if it established LBI’s insolvency. See

Def. Mem. at 20. The Bankruptcy Court, in finding that Brown Rudnick had failed to show

Lyondell was insolvent in October 2008, stated that “[e]ssential to the Trustee’s . . . preference

claim [is] proving that LBI was insolvent . . . on October 16, 17 and 20 of 2008, when the loan

repayments were made.” Lyondell I, 567 B.R. at 63. But it is a mischaracterization of the

Bankruptcy Court’s opinion to argue that it held that the only route available to Brown Rudnick

was to prove LBI’s insolvency. On the contrary, later, the Bankruptcy Court held that Lyondell

was the relevant debtor for the Preference Claim analysis, and that such analysis should be

limited only to it. Id. at 148. The Bankruptcy Court’s observation that Brown Rudnick needed

to prove LBI was insolvent appears to have been artifact of Brown Rudnick’s contested decision

to pursue that theory only, and its consequent failure to offer evidence of Lyondell’s stand-alone

insolvency. Given that backdrop, the Bankruptcy Court appears to have been conveying that it

could find Lyondell to be insolvent only if it extrapolated such insolvency from Brown

Rudnick’s evidence as to LBI. It declined to do so. Id. at 149.

Second, Brown Rudnick argues that Holliday has the burden to show an affirmative

defense would not succeed, and that the AC failed to do so for Access’s ordinary course

affirmative defense. See Def. Mem. at 20–21. Brown Rudnick is wrong on both fronts. When

alleging a prima facie case for legal malpractice, a plaintiff does not have the burden of proving

that affirmative defenses will fail.6 See Romanian Am. Interests, Inc. v. Scher, 464 N.Y.S.2d

821, 823 (2d Dep’t 1983). And, even if Holliday did have that burden, the AC adequately pleads

that Access’s affirmative defense came up short. Although the Bankruptcy Court found it

unnecessary to rule on Access’s affirmative defense, the AC reasonably alleges that the defense

would have failed because Access did not introduce any direct evidence at trial to support it. See

AC ¶¶ 115–16.

The Court thus holds that, for its claim of malpractice based on the loss of the Preference

Claim, the AC states a claim against Brown Rudnick. It has adequately pled attorney negligence

and causation. Accordingly, the Court denies Brown Rudnick’s motion as to that claim.

3. Loss of Settlement Value

The AC brings a second claim of malpractice based on the loss of settlement value

attributable to the Preference Claim. As to this claim, the AC alleges that Brown Rudnick

committed malpractice by failing to inform the Trust Advisory Board of its malpractice with

regard to the litigation of the Preference Claim; instead, it told the board that the claim had a

“good prospect of success.” Id. ¶ 99. The AC alleges that, had Brown Rudnick revealed its

mistakes and provided the Trust Advisory Board with candid advice as to the Preference Claim,

the Trust Advisory Board could have settled the claim. Id. ¶ 102.

6 For the proposition that Holliday bears the burden to disprove affirmative defenses, Brown

Rudnick cites Nitis v. Goldenthal, 513 N.Y.S.2d 186 (2d Dep’t 1987). But there the court noted

that the defendant attorney had sustained his burden by showing that he had a viable affirmative

defense. Id. at 188. As such, the court granted summary judgment for the attorney. Id.

Brown Rudnick counters that the settlement malpractice claim should be dismissed

because it depends on the first malpractice claim, which it contends is deficient. Def. Mem.

at 21. Because the Court has found the first malpractice claim viable, that argument fails.

Brown Rudnick next argues that it had no duty to inform the Trust Advisory Board

because the Trustee (at the time, Weisfelner) and the Trust were its clients, and the Trust

Advisory Board was not. Id. at 21–22. “It is well established that, with respect to attorney

malpractice, absent fraud, collusion, malicious acts, or other special circumstances, an attorney is

not liable to third parties, not in privity, for harm caused by professional negligence.” Moran v.

Hurst, 822 N.Y.S.2d 564, 566 (2d Dep’t 2006) (citation omitted).

Brown Rudnick is correct that the AC does not allege an attorney-client relationship––or

any facts supporting one––between Brown Rudnick and the Trust Advisory Board. See AC

¶ 139 (“Brown Rudnick had an attorney-client relationship with the Trust.”). Reinforcing Brown

Rudnick’s argument, the AC also references an “engagement letter,” which Brown Rudnick

entered into with Weisfelner in his capacity as trustee. Id. ¶ 21. This, too, indicates that the

attorney-client relationship was between them.7

In response, Holliday argues only that “Brown Rudnick’s assertion that it did not have to

keep the Trust Advisory Board (“TAB”) informed of material matters is baseless.” Pl. Mem.

7 In support of its argument that the Trust Advisory Board was not its client, Brown Rudnick

cites the engagement letter, which, it contends, “makes clear that Brown Rudnick had an

attorney-client relationship only with Mr. Weisfelner as Trustee and with the Trust.” Def. Mem.

at 21. For avoidance of doubt, while the Court arguably could have considered the entirety of

the engagement letter––as Brown Rudnick urged in attaching the full engagement letter to the

Clark Declaration, see Clark Decl., Ex. 7, Ex. A–– the Court, in an excess of caution, has

considered only the aspects of the engagement letter referenced by the AC.

at 24. That is non-responsive. It does not supply the critical missing factual ingredient: an

attorney-client relationship between the Trust Advisory Board and Brown Rudnick.8

The Court therefore dismisses the malpractice claim based on the loss of the Preference

Claim’s settlement value.9

B. Breach of Fiduciary Duty

The AC’s final claim is for breach of fiduciary duty, based on Brown Rudnick’s refusal

to produce the Trust’s client file unless the Trust first paid Brown Rudnick to review the file for

relevance and privilege. For a breach of fiduciary duty claim, a plaintiff must allege “(i) the

existence of a fiduciary duty; (ii) a knowing breach of that duty; and (iii) damages resulting

therefrom.” Smith v. Smith, No. 17 Civ. 6648 (PAE), 2019 WL 1755517, at *9

(S.D.N.Y. Apr. 19, 2019) (citation omitted); accord Johnson v. Nextel Commc’ns, Inc.,

660 F.3d 131, 138 (2d Cir. 2011). “In addition, ‘where damages are sought for breach of

fiduciary duty . . . the plaintiff must demonstrate that the defendant’s conduct proximately

caused injury in order to establish liability.’” Smith, 2019 WL 1755517, at *9 (alteration in

8 Holliday also notes that under the Trust Agreement, the Trust Advisory Board “had the power

‘to oversee, manage, and direct the activities of the Litigation Trust and the performance of the

Litigation Trustee,’ including with respect to any settlement decisions.” Pl. Mem. at 24–25

(citing Bruckerhoff Decl., Ex. 1 ¶¶ 4.1, 4.3(a), 6.2). The Court again declines to consider the

aspects of that agreement that are not incorporated into, attached to, or integral to the AC. In any

event, these portions do not evince, or give rise to, an attorney-client relationship between Brown

Rudnick and the Trust Advisory Board.

9 The Trust Advisory Board conceivably may have a viable claim against trustee Weisfelner for

failing to keep it apprised of the Preference Claim. See AC ¶ 99 (alleging Weisfelner’s failure to

disclose Brown Rudnick’s malpractice); cf. Karl v. Asarco Inc., No. 02 Civ. 5565 (GBD),

2004 WL 2997872, at *10 (S.D.N.Y. Dec. 23, 2004) (“The ‘duty to inform is a constant thread in

the relationship between beneficiary and trustee; it entails not only a negative duty not to

misinform, but also an affirmative duty to inform when the trustee knows that silence might be

harmful.’” (quoting Bixler v. Central Pa. Teamsters Health & Welfare Fund, 12 F.3d 1292, 1300

(3rd Cir. 1993)). That, however, is not the claim brought here.

original) (quoting LNC Invs., Inc. v. First Fid. Bank, N.A. N.J., 173 F.3d 454, 465

(2d Cir. 1999)).

Brown Rudnick argues that the AC has not adequately pled causation and damages. Def.

Mem. at 23–24. The Court agrees.10

Holliday first argues that the AC has alleged that the withholding of the file proximately

caused damages, because access to the client file would have saved the Trust time and resources

in evaluating and litigating its claim. See Pl. Mem. at 25. But, although Holliday so states in his

opposition, the AC does not allege any facts to that effect––or, for that matter, any other concrete

damages the Trust suffered from lack of access to the file. See AC ¶¶ 122–26, 143–48. The AC

asks only that the Court “award Plaintiff damages in an amount to be proven at trial.” Id. ¶ 148.

That allegation is conclusory and does not plausibly allege injury to or damages suffered by the

Trust from denial of the file. See Rahl v. Bande, 328 B.R. 387, 418 (S.D.N.Y. 2005) (dismissing

breach of fiduciary duty claim for failure to plead damages where plaintiff pled only that “[a]s a

proximate result of the [defendants’] . . . breaches of their fiduciary duties, [plaintiff] has been

damaged in an amount to be proven at trial,” which the court held to be “[a] conclusory

allegation . . . clearly insufficient to support a claim for damages”); see also Prout,

316 F. Supp.3d 784, 808 (S.D.N.Y. 2018) (dismissing breach of fiduciary duty claim for failure

to plead causation and damages where client alleged only that attorney’s withholding of case file

10 Brown Rudnick also argues that it did not breach a duty to Holliday, because Holliday has not

paid Brown Rudnick to assemble the file. See Def. Mem. at 23 (citing Sage Realty Corp. v.

Proskauer Rose Goetz & Mendelsohn LLP, 91 N.Y.2d 30, 38 (1997) (“[A]s a general

proposition, unless a law firm has already been paid for assemblage and delivery of documents to

the client, performing that function is properly chargeable to the client[.]”)). Because the Court

finds this claim deficient on other grounds, the Court has not reached this argument.

forced him to resolve his case for “considerably less money than he would otherwise have

received”).

Holliday next contends that its claim should not be dismissed because nominal damages

could be awarded on this claim. Pl. Mem. at 25. Be that as it may, see Action House, Inc. v.

Koolik, 54 F.3d 1009, 1013 n.4 (2d Cir. 1995); Juniper Entm’t, Inc. v. Calderhead,

No. 07 Civ. 2413 (ADS), 2013 WL 120636, at *5–6 (E.D.N.Y. Jan. 9, 2013), the AC still falls

short. The AC does not plead damages generally related to this claim and it does not contain a

prayer for nominal damages.11 Hammond v. The Bank of N.Y. Mellon Corp., No. 08 Civ. 6060

(RMB), 2010 WL 2643307, at *11 (S.D.N.Y. June 25, 2010) (granting summary judgment for

defendants because “[p]laintiffs do not include a plea for nominal damages in the Second

Amended Complaint and they cannot use their motion submissions to amend their pleadings”).

As such, the AC’s breach of fiduciary duty claim must be dismissed. See Margrabe v. Sexter &

Warmflash, P.C., 353 F. App’x 547, 549 (2d Cir. 2009) (affirming dismissal of breach of

fiduciary duty claim because plaintiff “cannot make out a prima facie case of fiduciary duty”

where she failed to allege damages directly caused by defendant’s misconduct).

CONCLUSION

For the foregoing reasons, the Court grants Brown Rudnick’s motion in part and

dismisses it in part. The Court dismisses Holliday’s malpractice claim for lost settlement value

11 In other contexts, the Second Circuit has not required explicit pleading of nominal damages

where other damages were adequately alleged but later are found too speculative. See Luitpold

Pharms., Inc. v. Ed. Geistlich Sohne A.G. Fur Chemische Industrie, 784 F.3d 78, 87

(2d Cir. 2015) (breach of contract, in which nominal damages “are always available” (citation

omitted)); Irish Lesbian & Gay Org. v. Giuliani, 143 F.3d 638, 651 (2d Cir. 1998) (constitutional

rights). Here, however, the AC does not adequately allege any form of damages.

and his breach of fiduciary duty claim, but denies the motion to dismiss the malpractice claim for

loss of the Preference Claim.

The Court will, by separate order, schedule an initial pretrial conference. The Clerk of

Court is respectfully directed to terminate the motions pending at dockets 12, 15, 25, and 28.

SO ORDERED.

____________________________

Paul A. Engelmayer

United States District Judge

Dated: July 28, 2020

New York, New York