KARL S. FORESTER, Senior District Judge.
This matter is before the Court upon the motion filed by the Defendants, Joshua Santana, David Bratt, Robert Brown, Philip Fay, Ann Samani, Santana Law Office, PSC, Santana and Beiting, PSC, Santana and Fay, PSC, Santana, Fay & Bratt, PSC, Brown, Santana & Bratt, PSC, and Brown, Bucalos, Santana & Bratt, PSC ("Defendants"), for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure [DE #23]. This matter is fully briefed and ripe for review.
Plaintiff, Jeannette Martello, M.D. ("Martello"), is a medical doctor, who also has a law degree. Indeed, no one would dispute that Martello has an impressive academic background. Martello attended Stanford University from 1980 to 1984, earning a B.S. and M.S. in biological sciences [DE #23-2]. She attended U.C.L.A. Medical School from 1984 to 1988, earning an M.D. [Id.]. She also attended the Boalt Hall School of Law at U.C. Berkeley from 1989 to 1991 and 1996 to 1997, earning a J.D. [Id.]. Although Martello has completed and passed the Multi-State Professional Responsibility Examination (MPRE), she has been unsuccessful in her multiple attempts to pass the Kentucky bar exam (as well as in her one attempt to pass the New York bar exam) and is not a licensed attorney [Id.].
According to Martello's verified complaint, in 1991, while a resident physician in Lexington, Kentucky, Martello began to review potential medical malpractice cases for Joshua Santana ("Santana") and his then-law firm of Brown, Bucalos, Santana & Bratt, PSC as a medical legal consultant. Santana and his law firm had represented her as her attorneys in several legal matters, including in matters involving the University of Kentucky, the University of Kentucky Medical Center and The Sterling Group. Her "medical legal" consulting work for Santana and his law firm was unrelated to this representation and included: acquisition and review of pertinent legal medical records; formulating opinions regarding the existence of medical negligence; identification of possible defendants; extensive medical literature
In 1993, Martello, then a surgery resident at the University of Kentucky Medical Center, treated a toddler who became irreversibly brain damaged after a previous surgery at another facility. After receiving permission from the child's parents to talk about their child's case with an attorney, Martello discussed the matter with Santana. Santana then personally solicited the child's parents at the hospital's intensive care unit, and the family retained Santana and his law firm to represent them. After the child died, Martello and Santana met at his house to discuss the possibility of working together on the legal representation of the child's family. At this meeting, Martello asked if there was any other working arrangement that they could enter into besides that of an hourly rate reimbursement. According to Martello, "[a]fter all, but for her introducing Santana to the family, Santana would never have met them" [DE #1 at p. 4]. Santana proposed that Martello could be paid a percentage of the attorneys fees that he and his law firm received in the case. According to Martello, Santana further stated that she could receive a percentage of the attorneys fees that he and his law firm recovered in future cases if she introduced Santana to the patient and/or family and performed consultant work for the case on a deferred compensation, contingency basis. Santana then wrote by hand the following outline of their agreement:
[DE #23-6]. Martello testified that she believed that these terms would govern every case in the future in which she introduced Santana to clients and in which there were medical damages of some sort involved.
On or around July 22, 1993, Santana sent a letter to Martello on the letterhead of Brown, Bucalos, Santana and Bratt, P.S.C., confirming Martello's compensation arrangement for her services on the Howard/Lee matter [DE #23-7]. The letter specified that, for the Howard/Lee case, Martello would provide legal/medical consulting services in exchange for 20% of the law firm's legal fee if settled prior to a lawsuit being filed or 25% of the fee if settled after the filing of a lawsuit. The letter also provided that the law firm would reimburse Martello for her out-of-pocket expenses in procuring an expert witness. The letter was signed by both Santana, on behalf of his law firm, and Martello.
In 1996, Martello was a treating physician for a young man who had substantial dead musculature surgically removed from his lower leg. The patient's mother asked Martello for assistance in finding answers as to why her son's muscle was dead and whether anything could have been done to prevent the muscle from dying. After receiving permission from the patient and his mother, Martello called Santana and
Martello's compensation arrangement in the Howard/Lee case was later discussed during a case file review at Santana's firm and was determined to be an impermissible arrangement under the Kentucky Rules of Professional Conduct governing lawyers. Santana testified that he discussed the issue with Martello, who, at the time, was in the process of completing her legal studies. In a March 31, 1997 letter, Santana wrote to Martello about the ethical concerns of the arrangement, stating as follows:
[DE #23-3].
Santana testified that, although this letter only specifically referred to the Howard/Lee case, the understanding was that the other existing percentage compensation agreements were also modified to be hourly and that he asked Martello to submit hourly invoices for the Davis case and Tinker case (discussed below), too. However, Martello argues that Santana admits that Martello did not agree-either orally or in writing-to alter the arrangement to an hourly fee for those cases in which they had already entered into a contingency fee arrangement.
In August 1997, Martello was a treating physician for a child who underwent an arm amputation. The patient's mother asked Martello to help find out why her son had to undergo the amputation and how it could have been prevented. The mother gave Martello permission to present her minor son's case to an attorney. Martello called Santana and told him about her patient's case, but would not give Santana the patient's name and location until she verified that she and Santana would enter into a contingency fee relationship. Santana and Martello verbally agreed that, in exchange for her introduction of Santana to the patient and his mother and for Martello's medical legal consultant work, Martello would receive a contingency fee of 25% of the fees recovered by Santana and his firm if the matter settled before trial and 33 1/3% of the fees recovered by Santana and his firm if the case resulted in a trial and jury verdict. Although Martello informed Santana that she would prefer to have a written contract and Santana agreed to write one up, he failed to do so.
In the Spring of 1997, the Howard/Lee case was settled for $400,000.00, with a fee of $160,000.00 paid to Santana's law firm. In accordance with his March 31, 1997
The Davis matter was settled during the Summer of 1999. As a result of their work on the case, Santana and his firm received approximately $67,556.84 in legal fees. Thus, under the contingency fee agreement, Martello would have received $16,889.21, or 25% of the legal fee. However, Santana paid $5,000.00 to Martello for her work on the case on August 2, 1999. Santana maintains that, despite again being sent a copy of his law firm's time records to assist her in preparing her bill to the firm, Martello did not attempt to reconstruct her time and billing records on the matter. Thus, Santana claims that Martello was paid $5,000.00 as a "good faith valuation" of her services. Martello claims that, when she received the check from Santana, she called him and asked about the amount of the settlement and Santana's firm's attorneys fees. According to Martello, Santana said that there was a "gag order" in the case and he could not tell her the settlement amount, but that "there was no need to worry, because I have taken care of you, just like I always have" [DE #1].
Because the Tinker case involved two separate civil actions, a negligence action arising out of the automobile accident and a separate medical malpractice action, there were also two separate lawsuit settlements. The automobile accident case settled around November 1998 and resulted in a $500,000.00 fee for Santana and his law firm. The settlement in the medical malpractice case was reached around July 2000 and resulted in an $83,333.33 fee for Santana and his law firm. Although no written contingency fee agreement existed for Martello's work on the Tinker case, Martello maintains that, under her verbal agreement with Santana, she was entitled to be paid more than $100,000.00. However, in early December 1998, Martello received a check from Santana and his firm for $17,600.00 for her services in the automobile
In 2005, while doing research for an article related to overcoming medical adversity, Martello tracked down the patient in the Tinker case. During the course of her conversation with him, he told her that he believed that his case had settled for around $1.75 million and that the lawyers received around $700,000.00, although there were a few lawyers other than Santana involved in the case. After this conversation, Martello located the patient in the Davis case to ask about the settlement amount in his case. He told her that he thought that the amount of the settlement was $170,000.00 and that Santana and his firm had received around $70,000.00.
A day after discovering this information, Martello contacted a lawyer, Brandon Tesser, and asked him to investigate whether she had been paid the appropriate amounts by Santana and his law firm. At Santana's request, a Confidentiality Agreement was signed by Martello, Tesser and Santana in February 2006 [DE #23-16]. In March 2006, Santana's attorney forwarded documentation regarding fee agreements and settlement amounts to Tesser.
Martello and Santana also entered into two tolling agreements regarding this dispute. The first, entered into in early November 2005, was signed by Martello and Santana in his individual capacity and tolled the statute of limitations for the parties' claims during the period from July 11, 2005 through January 1, 2006 [DE #23-14]. The second tolling agreement was signed by Martello and Santana, again in his individual capacity, in February 2006 and tolled the statute of limitations for the parties' claims from June 1, 2005 through April 1, 2006 [DE #23-15]. This tolling agreement further provided that the tolling period would terminate automatically on April 1, 2006, unless extended by a written agreement prior to April 1, 2006 [Id.]. The parties did not extend the tolling agreement beyond April 1, 2006 [DE #1].
On or around March 7, 2011, Martello filed a complaint in this Court pro se.
Accordingly, Martello's claims are all contingent upon either her ability to enforce the contingency fee agreements in the Howard/Lee, Davis and Tinker matter; the validity of her claims for fraud and fraudulent concealment in connection with the settlement and legal fee amounts for each of these cases; and/or the validity of her breach of fiduciary duty claims. However, as set forth more fully below, the Court finds that Martello's breach of contract claims are barred, as the contracts that she seeks to enforce are void as against public policy. Moreover, her claims sounding in fraud are barred by the applicable statute of limitations. Finally, to the extent that Martello's complaint attempts to bring a claim for breach of fiduciary duty that is separate from her fraud claim, Martello fails to show that Santana was her fiduciary with respect to their business dealings at issue in this case. As Martello's claims fail, her efforts to hold Santana's current law firm and/or the individual partners of that firm liable for her claims pursued in this lawsuit also fail. Accordingly, Defendants' motion for summary judgment will be granted and Martello's complaint in this action shall be dismissed.
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In reviewing a motion for summary judgment, "this Court must determine whether `the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Patton v. Bearden, 8 F.3d 343, 346 (6th Cir.1993) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). The evidence, all facts, and any inferences that may permissibly be drawn from the facts must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
Once the moving party shows that there is an absence of evidence to support the nonmoving party's case, the nonmoving party must present "significant probative evidence" to demonstrate that "there is [more than] some metaphysical doubt as to the material facts." Moore v. Philip Morris Companies, Inc., 8 F.3d 335, 340 (6th
"The general rule of our law is freedom of contract, subject only to statute and considerations of the public interest." Jack Henry & Associates, Inc. v. BSC Inc., 753 F.Supp.2d 665, 668 (E.D.Ky.2010)(quoting Smith v. The Ferncliff, 306 U.S. 444, 450, 59 S.Ct. 615, 83 L.Ed. 862 (1939)). Thus, notwithstanding this "general rule," a court "may refuse to enforce contracts that violate law or public policy." Id. (quoting United Paperworkers Int'l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 42, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987) (citations omitted)). See also Yeager v. McLellan, 177 S.W.3d 807, 809 (Ky.2005)("[A] court may refuse to enforce a contract on grounds of illegality where the contract has a direct objective or purpose that violates the federal or a state Constitution, a statute, an ordinance, or the common law.") (citations omitted). Indeed, it is generally well understood that, under Kentucky law, "a contract is void ab initio if it seriously offends law or public policy." State Farm Mut. Auto. Ins. Co. v. Newburg Chiropractic, P.S. C., 683 F.Supp.2d 502, 511 (W.D.Ky.2010)(quoting Commonwealth v. Whitworth, 74 S.W.3d 695, 700 (Ky.2002)). In this context,
Westlake Vinyls, Inc. v. Goodrich Corp., 518 F.Supp.2d 947, 953 (W.D.Ky.2007)(quoting Bankers Bond Co. v. Buckingham, 265 Ky. 712, 97 S.W.2d 596, 600 (1936)).
Here, Martello seeks to enforce purported oral and written contracts pursuant to which she would be paid a percentage of the attorneys fees recovered by Santana and his law firm, in exchange for her introduction of Santana to her patients/potential clients and for her medical legal consultation work on those patient's/client's cases. Such an arrangement is expressly prohibited by the Kentucky Rules of Professional Conduct governing the practice of law.
Supreme Court Rule 3.130(5.4) provides:
SCR 3.130(5.4). The agreements at issue between Santana and Martello all provided that Martello would be paid a portion of the attorneys fees recovered by Santana and his law firm in the respective cases. Thus, these agreements all call for the sharing of fees between a lawyer and a non-lawyer, which is clearly prohibited by Rule 5.4(a).
Martello tries in vain to re-characterize the agreements as falling within one of the exceptions to the general rule of Rule 5.4. Martello attempts to rely on Rule 5.4(a)(3), which permits a lawyer or law firm to "include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement." SCR 3.130-5.4(a)(3). Martello argues that she was "ostensibly employed" by Santana and his firm (although, she concedes, not as a traditional full-time employee) as a medical legal consultant for the Howard/Lee, Davis and Tinker matters. As such, Santana and his firm were permitted to include Martello in "the compensation plans at issue in this case, which were based in whole on a profit-sharing arrangement" [DE #26 at p. 17]. However, Martello's argument ignores her own testimony that she engaged in her medical legal consulting work with Santana and his firm as a contractor, not as an employee. Moreover, the broad interpretations of "compensation plans" and "profit-sharing arrangements" advocated by Martello would swallow the general rule prohibiting fee-splitting with non-lawyers. Indeed, this exception seems to be directed to circumstances where an actual employee (not an "ostensible" one) is included in a law firm's compensation or retirement plan that is, itself, based in whole or in part on a profit-sharing arrangement among the lawyers of the firm (as are most law firm's compensation plans). Under Martello's interpretation of these terms, it would be difficult to conceive of a fee-splitting arrangement that did not come within the exception.
Martello's effort to rely on KBA Ethics Opinion KBA E-394 (1996) is also unavailing. This Ethics Opinion makes clear that it is unethical for a lawyer to knowingly present testimony of an expert witness compensated on a contingent fee basis (which was not the situation here). Ethics Opinion KBA E-394. In addition, the Opinion further states that contracts for other litigation support services are permissible on a contingent fee basis, so long as those services do not include the presentation of expert testimony or the splitting of legal
Martello also attempts to rely on Bell Co. Bd. of Educ. v. Lee, 239 Ky. 317, 39 S.W.2d 492, 493 (1931), a case in which, according to Martello, "Kentucky's highest court approved of contingent fee arrangements for litigation support services" [DE #26 at p. 18]. However, in Lee, the Bell County Board of Education, not a lawyer, entered into a contract with an accountant to audit the books of certain county officers in order to ascertain whether the sheriff and county clerk had paid all moneys collected by them for school purposes to the school treasurer. Id. In exchange, the accountant was to be paid "a sum equal to 33 1/3% of all delinquent payments by the said Sheriff and Clerk, or a sum equal to 33 1/3% of any sum recovered... through litigation or compromise or otherwise," as well as on any money paid by the sheriff and clerk during and after his audit. Id. It was also agreed that, if litigation became necessary to collect the delinquencies, the accountant would testify as a witness (at his own expenses) and that the accountant and the school board would each pay one-half of all attorney's fees. Id. The court found that, in this context, "the mere fact that the recovery of compensation is to be contingent upon the success of the suit is not sufficient to nullify the contract." Id. However, the Lee case did not involve splitting a contingency fee between a lawyer and a non-lawyer, but rather addressed whether a school board could hire an accountant to assist with recovering money that the board believed that it was owed by county officials. The ethics issues involved in the instant case simply were not implicated in the Lee case.
Similarly, in Kentucky Bar Association v. Haas, 985 S.W.2d 346 (Ky.1999), another case relied upon by Martello, the Kentucky Supreme Court decided to impose reciprocal discipline on an attorney licensed in Ohio and Kentucky who had violated the Ohio legal ethics rules by entering into an arrangement with a non-lawyer insurance company salesman, whereby the salesman would refer personal injury claimants to the lawyer in return for a portion of the fees at the conclusion of the case. Id. at 346-347. Although the Court noted that the salesman had sued the attorney for unpaid fees and obtained a judgment (presumably in Ohio), in no way did the Court suggest that such a contract would be enforceable in Kentucky. Id. at 347. In addition, in determining that the attorney should also be disciplined in Kentucky for his conduct, the Court recognized that the attorney's conduct in that case "is also proscribed in SCR 3.130-5.4(a), which prohibits a lawyer from sharing legal fees with a non-lawyer; in SCR 3.130-7.20(2) which provides that a lawyer shall not give anything of value to a non-lawyer for recommending the lawyer's services, except that a lawyer may pay the reasonable cost of advertising or communication; and in SCR 3.130-5.4(c) which provides that a lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services." Id. Thus, the Haas decision actually supports Defendants' argument that the contingency fee agreements between Santana and Martello violated Kentucky's Rules of Professional Conduct.
Martello does not address whether the Howard/Lee, Davis and Tinker agreements are also unethical to the extent to
SCR 3.130 (7.20). The Commentary to the Rule makes clear that, although a lawyer is allowed to pay for advertising permitted by Rule 7.20, a lawyer is not otherwise permitted to pay another person for channeling professional work. SCR 3.130 (7.20)(2009 Supreme Court Commentary, Comment 2). Here, there can be no question that a portion of the fee that Martello seeks to collect in the Howard/Lee, Davis and Tinker matters represents a fee to be paid by Santana, a lawyer, to Martello, a non-lawyer, in exchange for recommending Santana's services to Martello's patients. Such an arrangement is explicitly prohibited by the Kentucky Rules of Professional Conduct.
Notwithstanding that the purported contracts that Martello seeks to enforce are prohibited by the Kentucky Rules of Professional Conduct, Martello argues that these Rules are unlike the Constitution or statutes of general application, as they are "limited to matters of attorney discipline and are not designed to create general public policy sufficient to void an attorney's contract with a non-attorney" [DE #26 at p. 19]. However, this argument fails to recognize the unique power granted to the judicial branch of government by Kentucky's Constitution. Specifically, Kentucky's Constitution exclusively vests the judicial power of the Commonwealth of Kentucky in one Court of Justice, divided into a Supreme Court, a Court of Appeals, trial courts of general jurisdiction known as the Circuit Court and trial courts of limited jurisdiction known as District Courts, which "shall constitute a unified judicial system for operation and administration." Ky. Const. § 109. The Kentucky Constitution further grants to the Supreme Court "the power to prescribe... rules of practice and procedure for the Court of Justice," and provides that the "Supreme Court shall, by rule, govern admission to the bar and the discipline of members of the bar." Ky. Const. § 116. As recognized by the Kentucky Supreme Court in Ex parte Auditor of Public Accounts, 609 S.W.2d 682, 685 (Ky.1980), the references to "administration and administrative functions" do not appear in § 109 by accident. Rather, "[t]heir purpose is to make it unmistakably clear that the judicial branch of this state government has exclusive authority to manage its own affairs." Id.
Thus, to simply dismiss the Rules of Professional Conduct as unequal to statutes of general application fails to recognize that the power to regulate attorney discipline constitutionally lies solely with the Supreme Court of Kentucky. Indeed, as explained by the Kentucky Supreme Court, "[t]he correct principle, as we view it, is that the legislative function cannot be so exercised as to interfere unreasonably with the functioning of the courts, and that any unconstitutional intrusion is per se unreasonable, unless it be determined by
Id. at 689.
Thus, although the Rules of Professional Conduct may only govern the conduct of Kentucky's lawyers, their impact is felt far beyond the members of the bar. Indeed, the Preamble to the Rules recognizes that the legal profession "has a responsibility to assure that its regulations are conceived in the public interest and not in furtherance of parochial or self-interested concerns of the bar." SCR 3.130 (Preamble)(XIII). Given that Kentucky's Constitution vests the judicial power of the Commonwealth exclusively with the Court of Justice, and specifically grants the power to regulate attorney discipline solely with the Supreme Court of Kentucky, the public policy determinations reflected by the Rules should not be any less highly regarded because they are carried out by Rules promulgated by the Supreme Court rather than statutes enacted by the Legislature.
This view is also consistent with the Restatement (Second) of Contracts, which provides that "[a] promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms." Restatement (Second) of Contracts § 178. According to the Commentary, "[t]he term `legislation' is used here in the broadest sense to include any fixed text enacted by a body with authority to promulgate rules, including not only statutes, but constitutions and local ordinances, as well as administrative regulations issued pursuant to them." Id. at Comment (a)(emphasis added). Thus, the Rules of Professional Conduct enacted by the Kentucky Supreme Court would be on equal footing with statutes enacted by Kentucky's Legislature.
Martello further protests that it would be unfair to permit Defendants to void the agreements and "make a windfall profit at Martello's expense because of what they
It is also not true that Martello is not bound by any ethics rules. Rather, as a licensed doctor, she has her own ethical obligations, which include refraining from fee-splitting. The ethics guidelines issued by the American Medical Association (AMA) provide that "[a] physician may not accept payment of any kind, in any form, from any source ... for prescribing or referring a patient to said source." AMA, Code of Medical Ethics, Opinion 6.02-Fee Splitting (updated June 1994), available online at: http://www.ama-assn.org/ama/pub/physician-resources/medical-ethics/code-medical-ethics/opinion602.page? (emphasis added). According to the AMA, such payments are inappropriate as violations of the requirement to deal honestly with patients and colleagues. Id. "The patient relies upon the advice of the physician on matters of referral. All referrals and prescriptions must be based on the skill and quality of the physician to whom the patient has been referred or the quality and efficacy of the drug or product prescribed." Id. Although referrals to attorneys are not specifically mentioned in the Rule, the concerns addressed by the Rule are also implicated where a physician refers a patient to an attorney as a potential medical malpractice client.
The AMA's Code of Medical Ethics also reflects concerns about a physician obtaining a personal interest in a patient's legal or administrative proceeding. For example, Opinion 6.01 prohibits contingent physician fees, warning that "[i]f a physician's fee for medical service is contingent on the successful outcome of a claim, such as a malpractice or worker's compensation claim, there is the ever-present danger that the physician may become less of a healer and more of an advocate or partisan in the proceedings." AMA, Code of Medical Ethics, Opinion 6.01-Contingent Physician Fees (updated June 1994), available online at: http://www.ama-assn.org/ama/pub/physician-resources/medical-ethics/code-medical-ethics/opinion601.page?. Similarly, Opinion 9.07 governing medical testimony by a physician states: "All physicians must accurately represent their qualifications and must testify honestly. Physician testimony must not be
For all of these reasons, the Court finds that the purported contracts between Martello and Santana and/or his law firm, whether written or oral, pursuant to which Martello claims she was to be paid a portion of the legal fees recovered by Santana and his law firm in exchange for introducing Santana to her patients and for her medical legal consulting work on those cases are void as against public policy. As explained by the Kentucky Supreme Court in Whitworth,
Whitworth, 74 S.W.3d at 700. Accordingly, the contracts that Martello seeks to enforce in this matter are unenforceable. Because these contracts are unenforceable, Martello's efforts to enforce these contracts against Santana's current law firm and/or the individual partners of that firm (the other Defendants in this matter) also fail. Thus, Defendants' motion for summary judgment on Martello's breach of contract claims shall be granted.
In addition to her breach of contract claims, Martello also brings claims for fraud/fraudulent concealment in connection with Santana and his law firm's failure to disclose the settlement and legal fee amounts in the Howard/Lee, Davis and Tinker matters. As noted above, Martello accepted and deposited the payment for her fees in the Howard/Lee case in June 1997. The Davis matter was settled during the Summer of 1999 and Santana paid Martello for her work on the case on August 2, 1999. The Tinker cases were settled in 1998 (automobile accident case) and July 2000 (medical malpractice case). Martello was paid for her work on the
Under Kentucky law (which the parties agree applies here), an action for relief or damages on the ground of fraud must be commenced within five years after the cause of action accrues. KRS § 413.120(12). Under KRS § 413.120(3), a cause of action for fraud is not deemed to have accrued until the discovery of the fraud, although the action must be commenced within 10 years after the perpetration of the fraud. KRS § 413.130(3). Although Kentucky law sets the length of the statute of limitations, the date that the statute of limitations begins to run is established by federal law. Winnett v. Caterpillar, Inc., 609 F.3d 404, 408 (6th Cir. 2010) (citations omitted). "Under federal law, as under most laws, the limitations clock starts ticking `when the claimant discovers, or in the exercise of reasonable diligence should have discovered, the acts constituting the alleged violation.'" Id. (quoting Noble v. Chrysler Motors Corp., 32 F.3d 997, 1000 (6th Cir.1994)). Similarly, under Kentucky law, the "discovery rule" provides that "a cause of action will not accrue until the plaintiff discovers, or in the exercise of reasonable diligence should have discovered, not only that he has been injured but also that his injury may have been caused by the defendant's conduct." Hazel v. General Motors Corp., 863 F.Supp. 435, 438 (W.D.Ky.1994) (citations omitted). Thus, under both federal and Kentucky law, the critical question is when Martello discovered, or in the exercise of reasonable diligence should have discovered, that she had been damaged and that her damages may have been caused by Defendants.
Here, the Court finds that Martello's suspicions should have been raised regarding whether or not she was being paid her full "contingency" fee and whether or not Santana was being forthcoming regarding the settlement amounts and legal fees received by his firm beginning in at least the Spring of 1997. In Santana's March 31, 1997 letter, Santana specifically informed Martello that the "contingency fee" arrangement was unethical under Kentucky's legal ethics rules. However, Martello maintains that, notwithstanding both parties' knowledge that this compensation arrangement was unethical, they verbally agreed on a contingency fee arrangement for the Tinker case in the Fall of 1997. Moreover, with respect to her work on the Howard/Lee matter, Martello claims that, because of the ethics concerns raised by the contingency fee arrangement, Santana asked Martello to itemize her work for the case on an hourly basis, sending Martello a copy of his law firm's time records in the case in order to assist her in "reconstructing" the four years of time she had worked on the case. Martello further claims that Santana rejected her first attempt to itemize her work, asking her to prepare a version with more hours in order to justify what would have been her full $40,000.00 contingency fee. She testified that Santana "wanted it to ... look like it was done on an hourly basis. He told [Martello] that it had to come out to $40,000.00" [DE #26 at p. 10].
However, even if Martello should not have reasonably discovered the alleged fraud by August 1999, her fraud claims would be untimely under the 10-year period for bringing fraud claims provided by KRS § 413.130(3). In each of the cases at issue here, Martello alleges that the fraud occurred when she was underpaid for her work on the case and, when questioned, Santana failed to disclose the true settlement amounts and legal fees received for each case. Martello was paid for her work
Martello argues that the statute of limitations for her claims was tolled by Defendant's alleged fraudulent concealment of the settlement amounts and the legal fees obtained in the contingency fee cases. Specifically, Martello relies on KRS § 413.190(2), which codifies the doctrine of fraudulent concealment, providing that:
KRS § 413.190(2). "If a plaintiff asserts fraudulent concealment as a basis for tolling, it must plead three elements: `(1) wrongful concealment of their actions by the defendants; (2) failure of the plaintiff to discover the operative facts that are the basis of his cause of action within the limitations period; and (3) plaintiff's due diligence until discovery of the facts.'" Hoover v. Langston Equipment Associates, Inc., 958 F.2d 742, 745 n. 1 (6th Cir.1992) (quoting Dayco Corp. v. Goodyear Tire and Rubber Co., 523 F.2d 389, 394 (6th Cir.1975)). In such circumstances, "[p]laintiff's ignorance of its cause of action does not by itself satisfy the requirements of due diligence and will not toll the statute." Hoover, 958 F.2d at 744 (citations omitted). Rather, "[a]ny fact that should excite [the plaintiff's] suspicion is the same as actual knowledge of his entire claim." Friedman v. Estate of Presser, 929 F.2d 1151, 1160 (6th Cir.1991) (quoting Dayco Corp., 523 F.2d at 394).
As noted above, by the time Martello received payment for her work on the Davis case in August 1999, multiple facts should have "excited her suspicion" about whether she was being paid her full "contingency" fee and whether or not Santana was being forthcoming regarding the settlement amounts and legal fees received by his firm. According to Martello's complaint, Santana had entered into unethical contingency fee arrangements with her, despite warning her that such arrangements were unethical, had encouraged her to essentially fabricate hourly billing statements, and had "theatrically" impersonated a minister in a hospital to gain access to the bedside of a dying child for financial gain. Given these circumstances, her failure to investigate further to determine whether or not she had been paid what she contends she was owed when he responded to her concerns about her payment by telling her not to "worry" that he had "taken care of her" does not satisfy the requirement of due diligence. Thus, the statute was not tolled under KRS § 413.190.
Martello further argues that, given the existence of an attorney-client relationship between Santana and Martello, he had a
As explained previously, given the narrative format of Martello's complaint and the sheer volume of information contained therein, it is difficult to ascertain the actual claims that she purports to bring in this case. However, Martello's complaint could be viewed as bringing claims for breach of fiduciary duty for defrauding Martello and for aiding and abetting this breach of fiduciary duty. Under Kentucky law, "[i]n order to prevail on a claim for breach of fiduciary duty, the plaintiff must prove: (1) the defendant owes a fiduciary duty to the plaintiff; (2) the defendant breached that duty; and (3) the plaintiff suffered damages as a result of the breach." Fastenal Co. v. Crawford, 609 F.Supp.2d 650, 665 (E.D.Ky.2009) (citations omitted).
To the extent that Martello's complaint could be construed as alleging a breach of fiduciary duty claim that is separate from her fraud claim, the only basis Martello alleges for the existence of a fiduciary duty is the attorney-client relationship that existed by virtue of Santana and his firm's work for her on other matters. However, as noted above, this representation was unrelated to Martello's work for Santana and his law firm as a medical legal consultant and any fiduciary relationship that existed between Santana and Martello as a result of his legal representation of her is not implicated with respect to the business relationship they had as a result of her consulting work for him and his firm. Thus, her breach of fiduciary duty claim and her related aiding and abetting breach of fiduciary claim both fail.
Martello's complaint also refers to a violation of the Kentucky Rules of Professional Conduct by Santana and his law firm that she "noted" during their attorney-client relationship [DE #1 at p. 40]. However, this section of the complaint does not actually assert a claim on Martello's behalf concerning Santana and his firm's alleged violation of the Kentucky Rules of Professional Conduct, but rather "notes" that Santana and his firm allegedly violated "Rule 730" and "Kentucky Bar Association, Ethics Opinion KBA E-408" by soliciting the families involved in the Howard/Lee, Davis and Tinker matters without
The remainder of Martello's claims — equitable estoppel, promissory estoppel, unjust enrichment, tortious interference with contract, conspiracy to defraud, mail fraud and wire fraud — are all contingent upon either her ability to enforce the contingency fee agreements in the Howard/Lee, Davis and Tinker matter; the validity of her claims for fraud and fraudulent concealment in connection with the settlement and legal fee amounts for each of these cases; and/or the validity of her breach of fiduciary duty claims. However, as the Court has determined that Martello's breach of contract claims and her claims sounding in fraud and breach of fiduciary duty are barred, these additional claims also fail.
Finally, Martello seeks to hold Santana's current law firm and/or the individual partners of that firm liable for her claims pursued in this lawsuit. Although Martello's purported consulting contracts for the cases at issue here were initially made with the firm of Brown, Bucalos, Santana & Bratt, PSC, this firm dissolved on August 28, 1998. A separate personal service corporation named "Santana Fay & Bratt, PSC" was formed with new members as of February 10, 1998. The parties dispute whether Santana Fay & Bratt, PSC assumed the contractual rights and obligations of Brown, Bucalos, Santana & Bratt, PSC, including the alleged contracts for Martello's work on the Howard/Lee, Davis and Tinker matters. However, as the Court finds that Martello's claims in this lawsuit fail, including her claim that these contracts are enforceable, Martello's claims against Santana's current law firm and/or the individual partners of that firm also fail. Thus, there is no need to resolve this dispute.
For the foregoing reasons, and the Court being fully and sufficiently advised, it is
