PHILADELPHIA – A Virginia business that claimed a Philadelphia law firm’s negligent misrepresentation resulted in it losing $30 million has lost its case, through the firm’s successful motion to dismiss.
Crawl Space Door System, Inc. (doing business as “Crawl Space Door Systems, Inc.”) of Virginia Beach, Va. first filed suit in the U.S. District Court for the Eastern District of Virginia on May 11, 2022 versus White & Williams, LLP, of Philadelphia.
“This case arises out of White & Williams’ legal representation of Crawl Space in a suit brought by Smart Vent Products, Inc. in the U.S. District Court for the District of New Jersey. While the lawsuit was filed in September 2013, White & Williams was not was retained until October 2015, when Crawl Space contacted [the firm] seeking representation,” the defendant’s dismissal motion recalled.
“The Smart Vent suit against Crawl Space alleged the following claims: 1) Unfair competition under the Lanham Act, unfair competition under New Jersey state law, common law unfair competition, negligent misrepresentation and trademark infringement under federal law. Crawl Space filed a counterclaim for false advertising, unfair competition and trademark cancellation.”
However, Crawl Space did not allege any antitrust claims in the counterclaims it asserted in the new responding to Smart Vent’s amended complaint. A few months before the trial, on June 18, 2019, Crawl Space filed a separate suit against Smart Vent in the U.S. District Court for the Eastern District of Virginia, seeking damages for alleged violations of the Sherman Act.
Trial in the New Jersey litigation was held in October 2019 and resulted in a verdict in favor of Crawl Space on all the Smart Vent claims, together with an award of $300,000 to Crawl Space on its counterclaim against Smart Vent, according to the motion.
“On Nov. 23, 2021, after the New Jersey litigation was concluded, White & Williams’ collection arm, Philadelphia Professional Collections, LLC, brought an action for unpaid legal fees against Crawl Space in the Philadelphia County Court of Common Pleas. Crawl Space removed the case to the U.S. District Court for the Eastern District of Pennsylvania and answered, but did not file a counterclaim. On Nov. 22, 2022, this Court granted summary judgment in favor of PPC and against Crawl Space in the amount of $797,613.45,” the motion continued.
“In this case, Crawl Space alleges that White & Williams’ representation in the New Jersey litigation was deficient in that the case it presented at trial ‘legally and factually’ preempted antitrust claims against Smart Vent in Virginia. Crawl Space is seeking damages in excess of $30,000,000 as a result of White & Williams’ allegedly deficient legal representation.”
White & Williams countered in a Dec. 30, 2022 motion to dismiss that Crawl Space’s amended complaint against it fails to state a claim upon which relief can be granted, and it should be dismissed.
“The essence of the amended complaint is that White & Williams damaged the value of Crawl Space’s antitrust claims against Smart Vent. But Crawl Space did not include antitrust causes of action in its counterclaims in the New Jersey litigation and therefore waived them, and they are barred by res judicata. Crawl Space therefore lost nothing due to any conduct of White & Williams. Crawl Space also waived its claim for malpractice by not raising a malpractice counterclaim when it answered the Pennsylvania litigation complaint for legal fees,” the motion stated.
White & Williams maintained that if Crawl Space had good faith antitrust claims, it was required to bring them as counterclaims in the New Jersey litigation, and not “wait until several months before trial of the New Jersey litigation to retain another lawyer and file a complaint against Smart Vent under Sections 1 and 2 of the Sherman Act in the Eastern District of Virginia.”
Subsequently, Smart Vent moved to dismiss Crawl Space’s amended complaint and the Court dismissed the Section 1 claim, prior to the case being settled.
“Because Crawl Space failed to assert its antitrust claims in response to Smart Vent’s amended complaint, it waived them and they are barred by res judicata. Nothing done or not done by White & Williams caused the loss of those claims, and Crawl Space has no claim for malpractice damages because the claims became worthless when waived,” the motion stated.
“Plaintiff Crawl Space’s amended complaint against White & Williams fails to state a claim upon which relief can be granted. Crawl Space’s claim for legal malpractice is barred as it was required to bring its antitrust claims as compulsory counterclaims in the New Jersey litigation, and should have alleged its malpractice claim against White & Williams as a compulsory counterclaim in the Pennsylvania litigation. Therefore, White & Williams’s motion to dismiss should be granted.”
On Jan. 20, the plaintiff filed an opposition brief to the defense’s dismissal motion.
“The malpractice claim alleged in the amended complaint of Crawl Space Door System, Inc. should not be considered compulsory under Third Circuit nor Fourth Circuit jurisprudence. Rather, the malpractice claim is a permissive counterclaim pursuant to Federal Rule of Civil Procedure 13 (a) and case law analyzing the issue. As the analysis below will demonstrate, Crawl Space’s malpractice claim filed in this Court does not arise out the same transaction or occurrence that is the subject matter of the opposing party’s claim,” the brief stated.
“Rather, the claim for attorney’s fees filed by Philadelphia Professional Collections, LLC in the Philadelphia County Court of Common Pleas is almost entirely unrelated to Crawl Space’s malpractice claim in both law and fact. In fact, the only similarity that the two claims share is the fact that both causes of actions occurred during White & Williams, LLP’s representation of Crawl Space. Otherwise, the two claims are substantially different in terms of the facts at issue and law applied in determining the merits of the claims. Therefore, this Court should deny White & Williams motion to dismiss.”
UPDATE
U.S. District Court for the Eastern District of Pennsylvania Judge Gerald A. McHugh granted the firm’s motion to dismiss the suit due to the company violating Federal Rule of Civil Procedure 13(a), and finding that its malpractice claim was “a compulsory counterclaim that should have been asserted in the collection action.”
Federal Rule of Civil Procedure 13(a) states: “A pleading must state as a counterclaim any claim that – at the time of its service – the pleader has against an opposing party if the claim: (A) Arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim; and (B) Does not require adding another party over whom the court cannot acquire jurisdiction.”
McHugh further cited Transamerica Occidental Life Insurance Company v. Aviation Office of America, Inc. from the U.S. Court of Appeals for the Third Circuit, which defined a compulsory counterclaim as one where it “need not be precise identity of issues and facts between the claim and the counterclaim; rather, the relevant inquiry is whether the counterclaim ‘bears a logical relationship to an opposing party’s claim.”
Additionally, McHugh referred to another Third Circuit case, Bristol Farmers Mkt. & Auction Co. v. Arlen Realty & Dev. Corp., where a ruling found that “a compulsory counterclaim not raised in the first action is barred in subsequent litigation.”
“Here, with Crawl Space claiming that White & Williams committed malpractice while representing it in the New Jersey litigation, and White & Williams having sued for fees, it seems self-evident that both claims have as their focus counsel’s representation in the underlying action. Because the malpractice claim arises out of the same representation at issue in the fee litigation, the claim is a clear ‘offshoot of the same basic controversy between the parties.’ Crawl Space’s malpractice claim is therefore barred, as it failed to assert it as a counterclaim to the fee litigation,” McHugh said.
“Moreover, Crawl Space itself affirmatively argued that the collection action was logically related to its malpractice claims in moving to transfer that action to the Eastern District of Virginia. Specifically, it represented ‘the facts necessary to resolve the [unpaid fees] case are a small subset of the facts that will be litigated in the malpractice case, and the claim for unpaid fees by White & Williams will be resolved in the malpractice case.’ It now disingenuously reverses course to argue that ‘the two claims consider almost entirely different facts and are unrelated.’ Plaintiff cannot have it both ways.”
According to McHugh, the malpractice claim was “wholly within Crawl Space’s contemplation at the outset of the collection action” and “in seeking transfer to Virginia, it criticized White & Williams’ filing in this District as preemptive, stating, ‘Crawl Space had engaged counsel (not the undersigned) for the purpose of initiating an investigation into potential legal malpractice liability on behalf of White & Williams, and White & Williams was on notice that Crawl Space was investigating a malpractice claim against it [when it filed the unpaid fees claim].”
“It thus seems clear that Crawl Space took a strategic gamble in choosing not to assert its malpractice claim, in the hope that it could transfer the collection case to its home state of Virginia. But, there was never a basis on which to assert jurisdiction over White & Williams in Virginia, as evidenced by quick transfer of the malpractice action. And the result of plaintiff’s forum shopping has been to occupy the federal courts with three separate cases to resolve a dispute properly addressed in one. This is precisely the type of waste that Rule 13 was designed to address, and as a result Crawl Space is barred from pursuing this claim. Defendant’s motion to dismiss will be granted,” McHugh concluded.
The plaintiff was represented by Duncan G. Byers of Patten Wornom Hatten & Diamondstein in Newport News, Va., plus Casey Green of Sidkoff Pincus & Green, in Philadelphia.
The defendant was represented by Peter J. Mooney and Farzana Islam of in-house counsel.
U.S. District Court for the Eastern District of Pennsylvania case 2:22-cv-04698
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com