A Richmond business law firm and two lawyer members are defending claims in federal court in Florida arising from an investment venture that went sour for two participants.
A U.S. District Judge sitting in Tampa on Sept. 7 dismissed a fraud claim leaving a legal malpractice claim to go forward against Kaplan Voekler Cunningham & Frank PLC along with attorneys Robert R. Kaplan and Robert R. Kaplan Jr.
The firm and the father-and-son lawyers have denied wrongdoing and denied even having an attorney-client relationship with the plaintiffs.
It’s the second lawsuit against the Kaplans and others filed by disgruntled investors who were voted out of executive positions in a real estate investment trust, or REIT, last year. The judge abstained on a request to dissolve the REIT in the first action and also dismissed three other sets of claims from the plaintiffs.
The plaintiffs are a New York anesthesiologist and the LLC he owns with his wife and a Florida real estate investor and his firm. The dispute over investment plans led to lawsuits – not just in Florida – but also in Delaware and in Richmond Circuit Court.
U.S. Magistrate Judge Anthony E. Porcelli summarized the plaintiffs’ allegations in a report and recommendation filed Aug. 5. A group of real estate investors planned various investment projects with the Kaplans providing legal services.
The plaintiffs acknowledged there was no written agreement defining the attorney-client relationship. They alleged that the younger Kaplan engaged in an unwritten fee arrangement for an early project under which Kaplan Jr. and his firm would receive a higher fee over their own fixed rate for every successful transaction completed.
Later, with a different entity, Kaplan Jr. allegedly proposed to provide all the required legal representation in exchange for a 50% profits interest in each property acquired. Kaplan – in an answer – admitted only that the proposal was made by one of the investors.
Ultimately, the investors involved in a REIT faced two competing plans for future ventures which came up for a vote on March 13, 2019. The plaintiffs were voted out of their positions with the investment group.
No separate fraud alleged
In the plaintiff’s first action, Jung abstained on one claim and dismissed two others on Aug. 21, 2019.
In the second action, the plaintiffs alleged 10 claims in their original complaint. Jung dismissed all of them. He then dismissed fraud claims in the plaintiffs’ first amended complaint, with leave to refile. The second amended complaint that followed included just one fraud count and one legal malpractice count.
The defendants – the Kaplans and their firm – filed a third 12(b)(6) motion challenging the fraud claim. Jung had ruled earlier that Virginia law applied.
The Kaplans argued the allegations were insufficient to establish an independent, common law duty separate from the alleged contractual duty owed by lawyer to client. The magistrate judge agreed.
“Here, the Second Amended Complaint fails to allege a factual scenario in which the alleged fraud occurred outside of the attorney-client relationship,” Porcelli wrote.
He said the unwritten understanding alleged by the plaintiffs essentially covered all aspects of the relationship, in which the plaintiffs “looked to the Defendants for guidance as securities lawyers and counselors.”
That ongoing association undermined any suggestion of fraud arising outside of the attorney-client relationship, the judge reasoned.
“The essence of Plaintiffs’ allegation is that the Kaplans used the attorney-client relationship to perpetuate a fraud. However, such conduct is governed by the attorney-client contractual agreement, and, … if the contract governs certain conduct, then failure to perform under the contract, even if intentional, will only result in a breach of contract,” Porcelli wrote.
Jung accepted Porcelli’s recommendation and granted the motion to dismiss the fraud claim in a Sept. 7 order.
Only a legal malpractice claim remains in the Florida federal action.
The Kaplans and their firm are represented by Vernon E. Inge of Richmond as well as Florida counsel. The plaintiffs are represented by John A. Anthony of Tampa and others with his firm. Inge declined comment on the record. Anthony was not available for comment.