Kalra v. Adler Pollock & Sheehan P.C.

          MEMORANDUM OF DECISION RE: DEFENDANTS' MOTION TO DISMISS COUNTS TWO AND THREE (ECF NO. 26)

          KARI A. DOOLEY UNITED STATES DISTRICT JUDGE.

         Kari A. Dooley, United States District Judge The Plaintiffs, Aashish Kalra (“Kalra”), Asia Pacific Ventures, Ltd (“Asia”), and Trikona Advisers, Limited (“TAL”) (collectively, “the Plaintiffs”), bring this action against their former attorney, Michael Gilleran, and his (now former) law firm, Adler Pollock & Sheehan (collectively “the Defendants”). The Defendants represented the Plaintiffs in a series of actions litigated in both Connecticut and the Cayman Islands. In Count One, the Plaintiffs allege legal malpractice. In Counts Two and Three they assert, respectively, claims for breach of fiduciary duty and violations of the Connecticut Unfair Trade Practices Act (“CUTPA”). The Defendants have moved to dismiss Counts Two and Three on the basis that neither states a viable cause of action under Connecticut law. The Plaintiffs oppose the motion. The Court heard oral argument on January 14, 2019. For the reasons that follow, the motion to dismiss is GRANTED in part and DENIED in part.

         Standard of Review

         In deciding a motion to dismiss under Rule 12(b)(6), the Court takes as true all allegations and construes them in a light most favorable to the Plaintiffs. Hoover v. Ronwin, 466 U.S. 558, 587 (1984). To state an adequate claim, “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 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when . . . plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant[s] [are] liable for the misconduct alleged.” Id. “Although all allegations contained in the complaint are assumed to be true, this tenet is ‘inapplicable to legal conclusions.'” LaMagna v. Brown, 474 Fed.Appx. 788, 789 (2d Cir. 2012) (quoting Ashcroft, 556 U.S. at 678); see also Amaker v. New York State Dept. of Corr. Servs., 435 Fed.Appx. 52, 54 (2d Cir. 2011) (same). Accordingly, the Court is not “bound to accept conclusory allegations or legal conclusions masquerading as factual conclusions.” Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (quoting Rolon v. Henneman, 517 F.3d 140, 149 (2d Cir. 2008) (internal quotation marks omitted)). Consequently, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555).

         Factual Allegations

         The complaint's allegations, taken as true for purposes of this motion, are summarized as follows. The Plaintiffs entered into an attorney-client relationship with the Defendants in or around April 2011. Defendant Gilleram continued in this relationship until October 2015. Defendant Adler Pollock & Sheehan continued in this relationship until January 2015. During the course of the attorney-client relationship, the Defendants represented the Plaintiffs in no less than five lawsuits or appeals in state, federal and foreign courts. Prior to and during the period of representation, the Defendants told the Plaintiffs, inter alia, that they were experienced commercial litigators, knowledgeable and well versed in international bankruptcy law, and highly skilled in the conduct of litigation, to include achieving prompt and favorable settlements.

         Plaintiff Asia was a 50% owner of TAL, a Cayman Island entity. Plaintiff Kalra is the controlling principal of Asia. TAL was also 50% owned either by non-party Rakshitt Chugh or one of his related entities. As a result of a dispute between Kalra and Chugh, the Plaintiffs brought suit against Chugh and his related entities in this Court, Civil Action No. 11-CV-0215 (SRU). Therein, the Plaintiffs claimed that Chugh breached his fiduciary duties and pleaded related causes of action arising out of the parties' joint interest in TAL. In that litigation, a prejudgment remedy was granted and, on April 9, 2012, Chugh posted a $1 million bond in lieu thereof.

         In January 2012, the Defendants rendered an opinion letter to Ravindra Chitnis and Saurabh Killa, directors of TAL, that concluded that Chugh could be removed from the TAL Board of Directors without notice and without the need to convene a Board of Directors meeting. They opined that, under TAL's Articles of Association, Chugh could be removed by a resolution in writing signed by all of the Directors, other than the director being removed. At that time, Kalra, Chugh, Chitnis, and Killa were the only directors of TAL.

         The purported motive for the opinion letter and the subsequent removal by resolution of Chugh from the TAL Board of Directors was to allow TAL to be substituted as the plaintiff in the Connecticut District Court litigation, thereby requiring TAL, instead of Kalra or Asia, to pay the legal fees associated with that litigation. The ability of TAL to incur and pay those fees “vastly exceeded” the ability of either Asia or Kalra to pay.

         On February 13, 2012, ARC Capital, Inc. (“ARC”) and Haida Investments, Ltd. in response to the Connecticut District Court litigation, filed a Petition in the Grand Court of the Cayman Islands seeking to wind up TAL and to divide its assets between Kalra and Chugh. Asia (the entity through which Kalra owned 50% of TAL), opposed the petition. In connection with the defense of the Cayman proceeding, the Defendants told the Plaintiffs that the Cayman Court proceedings can have “no effect on the U.S. proceedings, ” that the Judge in the U.S. proceedings “can never recognize any provisional liquidator appointed in the Cayman Proceedings, ” and that “Chapter 15 [of the United States Bankruptcy Code] is an absolute bar to recognition of foreign liquidators in U.S. Courts unless the recognition requirements of Chapter 15 are met.”

         The Defendants advised the Plaintiffs to assert Chugh's breach of fiduciary duty and related allegations as defenses to the wind up proceedings in the Cayman Court, which they did. The Cayman Court held a trial in January 2013 and rejected each of the defenses asserted by Asia. Thereafter, this Court gave preclusive effect to the findings of the Cayman Court. The Plaintiffs' litigation against Chugh and his related entities then pending in this Court were accordingly concluded on that basis. The District Court's decision was affirmed by the Court of Appeals for the Second Circuit.

         Moreover, the Cayman Court “relied heavily upon what he called a ‘seizure of control' that had serious adverse consequences for Mr. Chugh and the petitioners ARC Capital and Haida Investments ‘because it enabled [Kalra] to misuse the company's money for his own benefit.'” The benefit referred to was the payment of the Defendants' invoices and fees. The Cayman Court ordered Kalra and Asia to pay $700, 000 in costs.

         In addition to these allegations, the Plaintiffs allege in Count Two that the Defendants breached their duty of loyalty to the Plaintiffs. The Plaintiffs aver that the decision to remove Chugh as a director of TAL was “clearly designed to enrich [the Defendants]” at the expense of the clients' interests, given the impact of the Cayman Court's decision. The Plaintiffs further allege that the Defendants' decision to participate in the Cayman wind up proceeding permitted the Defendants to extract large amounts of legal fees “that otherwise would not have been paid had defendants advised the plaintiffs not to participate in the Cayman proceeding because of the risk that an adverse decision would preclude and defeat the Connecticut federal breach of fiduciary duty action against Chugh.” The Plaintiffs further aver that the Defendants, as a result, were “guilty of self-dealing and conflict of interest when they subordinated the interests of the plaintiffs to the pecuniary and financial interest of themselves.” In addition, the Plaintiffs aver that the Defendants breached their fiduciary duty by “charging exorbitant fees, churning hours needlessly, and falsely representing that they had expertise in areas of the law” at issue in the various forums.

         In 2014, ARC brought a vexatious litigation claim against the Plaintiffs and the Defendants. The claims were voluntarily dismissed but refiled in 2017. The Defendants settled this dispute and Plaintiffs allege that, in so doing, the Defendants further breached their fiduciary duty because the Defendants settled the lawsuit “knowing that the ...