KAREN E. SCHREIER, UNITED STATES DISTRICT JUDGE.
Plaintiffs Teresa Ann Thompson, individually and as special administer of the estate of Winfield Thompson, Sr., deceased, the estate of Winfield Thompson, and Melissa Prochnow and Jamie Helgeson, as special administrator(s)/personal
The facts alleged in the complaint, accepted as true, are as follows:
Winfield Thompson passed away as a result of injuries sustained in a 2009 motor vehicle accident with Nicholas Helgeson in South Dakota. In 2012, Teresa Thompson, daughter of Winfield Thompson, brought a wrongful death action in South Dakota against Helgeson, a resident of North Dakota. At the time of the motor vehicle accident, Helgeson (now deceased) was an insured under Nodak's automobile insurance policy. Nodak hired the lawyer defendants, located in Fargo, North Dakota, to defend Helgeson in the wrongful death action brought by Teresa Thompson. In 2014, Teresa Thompson's attorney sent a letter to Harrie, which included a settlement demand to Winfield Thompson's estate for the policy limit of $100,000. There was no response from Harrie, the Nilles Law Firm, Nodak, or Helgeson.
Harrie filed pleadings on behalf of Helgeson and appeared as counsel for Helgeson at a deposition and in two court hearings. Harrie was and is licensed to practice law in North Dakota, but he was not licensed to practice law in South Dakota and was not admitted pro hac vice to practice in South Dakota for the wrongful death action. As a result, the state court entered a default judgment against Helgeson. At a trial on damages, a jury awarded $127,000 to Winfield Thompson's estate, and a judgment was entered in favor of Thompson's estate and against Helgeson's estate.
Plaintiffs Teresa Thompson, individually and as special administer of the estate of Winfield Thompson, and the estate of Winfield Thompson brought four causes of action against the lawyer defendants and Nodak in Thompson v. Harrie, 4:18-cv-04022-KES: unauthorized practice of law, fraud and deceit, civil conspiracy, and barratry/abuse of process. This court granted the lawyer defendants' motion to dismiss all counts and Nodak's motion to dismiss all counts. See id., Dockets 21, 22.
The Thompson plaintiffs subsequently entered into an agreement with the Helgeson estate. Thompson's estate agreed not to execute on its judgment against Helgeson's estate in exchange for an assignment of the Helgeson estate's potential claims against the lawyer defendants and Nodak. The parties entered into a written agreement
A court may dismiss a complaint for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "A claim has 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." Id. "The plausibility standard is not akin to a `probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.
The court determines plausibility by considering the materials in the pleadings and exhibits attached to the complaint, by drawing on experience and common sense, and by viewing the plaintiff's claim as a whole. Whitney v. Guys, Inc., 700 F.3d 1118, 1128 (8th Cir. 2012). Inferences are construed in favor of the non-moving party. Id. at 1129 (citing Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 595 (8th Cir. 2009)). The court may also "consider `those materials that are necessarily embraced by the pleadings.'" Hughes v. City of Cedar Rapids, 840 F.3d 987, 998 (8th Cir. 2016) (quoting Schriener v. Quicken Loans, Inc., 774 F.3d 442, 444 (8th Cir. 2014)). "Those materials include `documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleadings.'" Id. (quoting Kushner v. Beverly Enters., Inc., 317 F.3d 820, 831 (8th Cir. 2003)). Materials that are part of the public record may also be considered in ruling on a motion to dismiss under Rule 12(b)(6). Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).
The lawyer defendants contend that only two claims in plaintiffs' complaint are asserted against the lawyer defendants: legal malpractice in count 1 and punitive damages in count 5. Docket 6 at 8. In response, plaintiffs do not appear to object to this contention. See Docket 19. Thus, the court will only address these two claims.
Under South Dakota law, a claim for legal malpractice requires four elements: (1) an attorney-client relationship that creates a duty, (2) the attorney breached that duty, (3) the attorney's breach proximately caused an injury to the client, and (4) the client sustained damages. Hamilton v. Sommers, 855 N.W.2d 855, 862 (S.D. 2014). In the previous lawsuit, this court determined that the Thompson plaintiffs failed to state a claim against the lawyer defendants for legal malpractice because the lawyer defendants, as counsel for Helgeson in the underlying litigation with Thompson, did not have an attorney-client relationship with the Thompson plaintiffs. See Thompson v. Harrie, 4:18-cv-04022-KES, Docket 21 at 7. Thus, the lawyer defendants did not owe a duty to the Thompson plaintiffs. Id.
The majority of courts have concluded that the assignment of a legal malpractice claim is against public policy for numerous reasons.
The minority view rejects an automatic bar on legal malpractice assignments, but instead favors a case-by-case determination on whether the cause of action may be assigned. See Thurston v. Continental Cas. Co., 567 A.2d 922, 923 (Me. 1989) (concluding that the reasoning of other jurisdictions that "flatly prohibit" assignment of any legal malpractice claim is not persuasive). Other jurisdictions have specifically concluded that, while not adopting a per se bar on assignability, assigning a legal malpractice claim to the adverse party in the underlying litigation is prohibited. See Kommavongsa v. Haskell, 149 Wn.2d 288, 67 P.3d 1068, 1078 (2003) (reasoning that while some public policy concerns cited by other courts "may be overstated," the public policy concerns in the context of assignment to an adversary are "legitimate and persuasive."); Freeman v. Basso, 128 S.W.3d 138, 142 (Mo. Ct. App. 2004) (holding that public policy bars assignment of a legal malpractice claim to an adversary in the underlying litigation because "the parties attempting to bring a claim for legal malpractice are the very parties who benefited
The South Dakota Supreme Court has not explicitly addressed whether a legal malpractice claim is assignable at all, or whether the claim can be assigned to the adverse party in the underlying litigation that gave rise to the alleged malpractice. Because the South Dakota Supreme Court has not addressed the issue, this court must place itself in the South Dakota Supreme Court's position and attempt to predict how the Court would likely resolve the matter. See Raines v. Safeco Ins. Co. of Am., 637 F.3d 872, 875 (8th Cir. 2011) ("Absent controlling [state supreme court] authority, a federal court sitting in diversity must attempt to predict what that court would decide if it were to address the issue."). In making this prediction, a federal court "may consider `relevant state precedent, analogous decisions, considered dicta, ... and any other reliable data.'" Id. (quoting Lindsay Mfg. Co. v. Hartford Accident & Indem. Co., 118 F.3d 1263, 1268 (8th Cir. 1997)).
The court begins with SDCL § 43-42-2, which provides that "[a] thing in action arising out of the violation of a right of property or out of an obligation may be transferred by the owner." SDCL § 43-42-1 defines a thing in action as "a right to recover money or other personal property by a judicial proceeding." The first case the court considers is Kobbeman v. Oleson, 574 N.W.2d 633 (S.D. 1998). In Kobbeman, the plaintiff was injured in a car accident and collected the policy limits from the tortfeasor's insurance company. Id. at 634. To recover additional damages, he received an assignment of the tortfeasor's cause of action against his insurance agents, and in exchange, the plaintiff agreed not to execute on any judgment he might obtain against the tortfeasor. Id. The plaintiff then sued the tortfeasor's insurance agents for failure to obtain a requested umbrella insurance policy. Id. at 634-35. In this insurance malpractice action, the South Dakota Supreme Court upheld the "assignments of a cause of action in exchange for a covenant not to execute in instances of failure to procure requested insurance" as a "tenable method" to transfer a cause of action but held that the assignment became ineffective when the statute of limitations expired. Id. at 636, 641.
Despite the holding in Kobbeman, the court predicts that here, based on other previous decisions, the South Dakota Supreme Court would prohibit assignment of a legal malpractice case to the adversary of the underlying litigation. First, "South Dakota recognizes the common-law prohibition on the assignment of personal injury claims." A. Unruh Chiropractic Clinic v. De Smet Ins. Co. of South Dakota, 782 N.W.2d 367, 370 (S.D. 2010). This is somewhat driven by the desire to prevent "maintenance and champerty, i.e., profiteering and speculating in litigation, `which would disturb the peace of society, lead to corrupt practices, and prevent the remedial process of law.'" Id. (quoting McKellips v. Mackintosh, 475 N.W.2d 926, 928 (S.D. 1991)). The Court, pointing to a public policy concern, noted that "maintenance, champerty, and the concerns underlying those doctrines continue to prohibit the assignment of litigation claims." Id.
The Court in Unruh Chiropractic also addressed the split of authority among jurisdictions on whether the prohibition on assignment of personal injury claims likewise prohibits the assignment of proceeds of a claim. Id. at 370-71. Examining the difference between legal and equitable assignments, the Court explained:
Id. at 372 (internal quotations and alterations omitted).
Thus, "legal assignments of claims directly implicate maintenance and champerty[,]" due to the assignor's transfer of control to the assignee. Id. But, the Court noted, other courts that enforce equitable assignments work around public policy concerns such as maintenance and champerty because the "equitable assignor retain[s] exclusive control over his lawsuit and any settlement thereof." Id. (alteration in original) (internal quotation omitted).
While the South Dakota Supreme Court recognized the distinction between legal and equitable assignments, it also recognized that "equitable assignments violating public policy may not be enforced." Id. It further noted that although "public policy strongly favors freedom to contract," there are times when other public policy considerations or the general welfare of the public will outweigh one's freedom to contract. Id. at 372-73. The Court ultimately concluded that the assignment of proceeds to a personal injury claim was prohibited, stating "we leave it to the Legislature to balance the competing public policies and authorize assignments of proceeds should it determine that the opposing policy concerns no longer prohibit such assignments." Id. at 374.
The Court's careful analysis in Unruh Chiropractic shows that personal injury claims cannot be assigned, proceeds of personal injury claims cannot be assigned, and equitable claims that violate public policy cannot be assigned. This leaves little room for the assignment of claims, other than the insurance malpractice claim addressed in Kobbeman, under South Dakota law. It also shows how the South Dakota Supreme Court recognizes the importance of public policy considerations in determining whether an assignment is allowed at all.
In that vein, the South Dakota Supreme Court likewise endorses public policy considerations in the area of legal malpractice actions. For instance, in Chem-Age Indus., Inc. v. Glover, 652 N.W.2d 756, 769 (S.D. 2002), the South Dakota Supreme Court discussed how a legal malpractice claim requires a plaintiff to show that an attorney-client relationship existed between the lawyer and the plaintiff because "South Dakota has long subscribed to the strict privity rule in attorney malpractice cases." Id. The Court then noted that the strict rule of privity has not been relaxed in legal malpractice cases (like it has in other jurisdictions) in part because the rule "preserves an attorney's duty of loyalty to and effective advocacy for the client." Id. (citation omitted). And "[b]ecause trust and confidence between attorney and client are essential, the relationship requires greater protection from third-party claims than do nonconfidential relationships." Id. at 770.
Kobbeman indeed permitted the assignment of an insurance malpractice action, but it did not discuss any public policy considerations that may guide this court on a determination regarding assignment of legal malpractice actions. Kobbeman, 574 N.W.2d at 635-37. In legal malpractice actions, the South Dakota Supreme Court still prioritizes considerations such as the duty of loyalty, confidentiality, and the essential element of trust between lawyer and client—a relationship requiring "greater protection" than "nonconfidential relationships." Chem-Age Indus., 652 N.W.2d at 769-70. These reasons—the duties pertaining specifically to the legal
Thus, the South Dakota Supreme Court has (1) limited assignments in general in South Dakota, see Unruh Chiropractic, 782 N.W.2d at 370-74, and (2) relied upon the duties of loyalty and confidentiality as a matter of public policy to protect lawyers from "limitless" litigation, See Chem-Age Indus., 652 N.W.2d at 769-70. Given these previous decisions, the court predicts that the South Dakota Supreme Court would follow the majority rule in concluding that a legal malpractice action cannot be assigned to the adversary in the underlying litigation. As such, the lawyer defendants' motion to dismiss for failure to state a claim is granted.
Punitive damages are a form of relief and not a "claim" that is subject to a Rule 12(b)(6) motion to dismiss. Benedetto v. Delta Air Lines, Inc., 917 F.Supp.2d 976, 984 (D.S.D. 2013) (citing Sec. Nat'l Bank of Sioux City v. Abbott Labs., 2012 WL 327863, at *21 (N.D. Iowa Feb. 1, 2012)). "[S]o long as there are surviving claims," punitive damages "are not subject to a motion to dismiss." Sec. Nat'l Bank of Sioux City, 2012 WL 327863, at *21; see also Hoaas v. Griffiths, 714 N.W.2d 61, 67 (S.D. 2006) (stating that the South Dakota Supreme Court has "consistently held that punitive damages are not allowed absent an award for compensatory damages." (quotation omitted)). Because plaintiffs' complaint is not being dismissed in its entirety and no party is being dismissed, the court will not address the issue of punitive damages at this time.
Given the South Dakota Supreme Court's previous decisions, the court predicts that the South Dakota Supreme Court would find the assignment of a legal malpractice claim to the adversary in the underlying litigation to be prohibited as a matter of public policy. Thus, it is
ORDERED that the lawyer defendants' motion to dismiss (Docket 5) is granted.
IT IS FURTHER ORDERED that the lawyer defendants' motion to take judicial notice (Docket 7) is granted.