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By: Erin Lamb
A blast from the dot-com bubble past took some of its final breaths in a Philadelphia courtroom recently, when a judge granted summary judgment in a legal malpractice action with its roots in the 2002 bankruptcy of telecommunications giant WorldCom. (The bankruptcy was the largest in U.S. history, until 2008, when it was overtaken in rapid succession by Lehman Brothers and Washington Mutual.)
In Communications Network International, LTD v William Mark Mullineaux, Esquire, et al, the Philadelphia Court of Common Pleas (Philadelphia Court) held that, although Plaintiff’s former attorney may have violated the standard of care on multiple occasions, the client, Communications Network International, LTD (CNI), did not conduct reasonable diligence when it failed to read the Opinion from 2006 that gave rise to the action.
Mr. Mullineaux’s representation of CNI began in March 2001. In February 2001, MCI WorldCom Communications, Inc. (World Com) sued CNI for breach of contract in the United States District Court for the Eastern District of Pennsylvania. CNI hired Mr. Mullineaux to represent them in the litigation. In response, Mr. Mullineaux filed a breach of contract claim on behalf of CNI against WorldCom for “slamming,” a practice that CNI claimed constituted, essentially, the theft of tens of thousands of CNI telephone customers. WorldCom soon filed for bankruptcy. Consequently, CNI’s claims were handled by the bankruptcy judge. In 2006, the bankruptcy court denied CNI’s Motion for Judgment on the Pleadings, granted in part WorldCom’s Motion for Judgment on the Pleadings, and dismissed CNI’s claims. The Court specifically noted the slamming allegations were not properly pled.
At deposition, CNI’s CFO, Mr. Cooke, admitted that Mr. Mullineaux sent him a copy of the bankruptcy court’s opinion back in 2006, shortly after it was issued. He testified that he did not read it. In September 2008, Mr. Mullineaux filed an appeal of the bankruptcy court decision to the United States District Court for the Southern District of New York. Two years later, in September 2010, the Southern District of New York affirmed the bankruptcy court’s rulings, including the holding that the filed-rate doctrine barred most of CNI’s claims Mr. Mullineaux did not send the Order and Opinion to Mr. Cooke until the 30 day appeal period passed. He secured leave from the district court to file the CNI appeal nunc pro tunc; however, the United States Court of Appeals for the Second Circuit dismissed CNI’s appeal as untimely filed and brought the appeals to an end. Consequently, CNI filed its legal malpractice action on December 9, 2014. CNI claimed damages in the approximate amount of $18,000,000.
The Defendants sought summary judgment, based on the running of statues of limitations. The Philadelphia Court of Common Pleas agreed, holding held that the statute began to run when the bankruptcy court ruled against CNI in 2006. The Court relied on Pennsylvania law, which has never tolled the statute of limitations in a legal malpractice claim until appeals have been exhausted. The Court did note that Mullineaux may have violated the standard of care on multiple occasions.
The Court went on to take the client to task for its failure to conduct reasonable diligence. CNI alleged it had lost almost $20 million by 2010, which the court noted constituted a “a hefty incentive for the exercise of attention, knowledge, intelligence and judgment by corporate officers with their own fiduciary duties to the corporation.” As a result, the Court determined that had CNI exercised reasonable diligence it should have at least read the courts’ Opinions denying its claims.
For any questions, please contact Erin Lamb at [email protected].