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Delalla v. Hanover Insurance

August 17, 2010

NICOLE M. DELALLA, ET AL.
v.
HANOVER INSURANCE, ET AL.



The opinion of the court was delivered by: Baylson, J.

MEMORANDUM RE: PLAINTIFFS' MOTION FOR RECUSAL AND PLAINTIFFS' FAILURE TO FILE AN AMENDED COMPLAINT AS ORDERED

Defendants Joseph Oberlies and his law firm Webber Conner & Oberlies ("the law firm Defendants") filed a Motion to Dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), and Defendant Hanover Insurance ("Hanover") filed a Motion for Judgment on the Pleadings and/or for Summary Judgment. Oral argument regarding these Motions was held on May 24, 2010, at the conclusion of which the Court issued the Order dated May 26, 2010 (Doc. No. 10) requiring Plaintiffs to file an amended complaint, and briefly stating the reasons for that requirement.

Plaintiffs did not file an amended complaint within the deadline, or since. However, on July 2, 2010, Plaintiffs filed a Motion for Recusal of the undersigned, together with an affidavit. (Doc. No. 14). This Memorandum will discuss reasons for denying the Motion for Recusal, and Plaintiffs will be ordered to show cause why the case should not be dismissed with prejudice in view of their failure to file an amended complaint.

I. Facts and Procedural History

The present dispute arises out of prior litigation between Plaintiffs and a third party named Product Partners; the parties refer to this prior litigation as "the underlying action." In the underlying action, Product Partners sued Plaintiffs in the Eastern District of Pennsylvania for trademark infringement, unjust enrichment, and unfair competition. Plaintiffs' insurance provider, Hanover Insurance, appointed Joseph Oberlies to represent Plaintiffs. Ultimately, a settlement between Plaintiffs and Product Partners was reach on February 4, 2005, and the case was dismissed with prejudice on February 11, 2005.

Plaintiffs' Complaint, filed on March 30, 2009 in New Jersey state court, alleges that Defendants breached their obligations to Plaintiffs by entering into an agreement to settle the underlying action. (Compl ¶¶ 14, 23.) As a result of entering into this settlement agreement, Plaintiffs had to terminate the use of the disputed trademark and consequently went out of business. (Compl. ¶ 16.) Accordingly, Plaintiffs have raised the following claims: (1) "bad faith against Hanover"; (2) "breach of contract against Hanover"; (3) "tort claim against the law firm defendants"; and (4) "contract claim against the law firm defendants." (Compl. ¶¶ 18--30.) Defendants removed the case to federal court on the basis of diversity jurisdiction, and the Honorable Robert B. Kugler of the District of New Jersey granted Defendants' Motion for Transfer of Venue to this Court.

The law firm Defendants filed a Motion to Dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), and Hanover filed an Answer, followed by a Motion for Judgment on the Pleadings and/or Summary judgment pursuant to Federal Rules of Civil Procedure 12(c) and 56(c). Oral argument on the merits of these motions was held on May 24, 2010, at the conclusion of which the Court issued the order dated May 26, 2010, requiring Plaintiffs to file an amended complaint. The oral argument was spirited and marked by the vigorous contentions of Plaintiffs and Defendants. As the transcript of the hearing shows, the Court made numerous remarks indicating a refusal to dismiss the Complaint when dismissal was repeatedly requested by Defendants, and at the same time, posed hard questions to Plaintiffs' counsel and found that the nature of the allegations by Plaintiffs would require an amended complaint for various reasons.

Per the terms of the Order, Plaintiffs were required to file an amended complaint within thirty days. As that date approached, Plaintiffs requested an extension of one week to file their amended complaint, which the Court permitted over Defendants' opposition. Plaintiffs did not file an amended complaint within the extended deadline, or since. However, on July 2, 2010, Plaintiffs filed a Motion for Recusal of the undersigned, together with an affidavit of Plaintiff Paul DeLalla of NMD Marketing, Inc. (Doc. No. 14.) Defendants filed responses in opposition to this Motion. (Doc Nos. 15, 17.)

II. Plaintiffs' Motion for Recusal

Plaintiffs' Motion for Recusal is filed pursuant to 28 U.S.C. § 455 and asserts that the undersigned has a "fixed view" of the case and cannot objectively and impartially preside over the case. Plaintiffs' affidavit, in the view of the undersigned, is not an accurate representation of what took place at the oral argument and fails to establish any reasonable question of the undersigned's impartiality.

A. May 24, 2010 Oral Argument

Plaintiffs' articulated bases for recusal all stem from oral argument held on May 24, 2010 regarding Defendants' Motions to Dismiss, and for Judgment on the Pleadings and/or for Summary Judgment. At the hearing, the Court asked Plaintiffs' counsel, Michael Kimm, Esquire, about the Settlement Agreement that Plaintiff Paul DeLalla had signed to resolve the underlying action in 2005. (Tr. 15-18, May 24, 2010.) The Court specifically focused on Paragraph V(a) of the Settlement Agreement, which states that "[e]ach of the parties hereto has received independent legal advice from attorneys of its or his own choice with respect to the advisability in making the settlement provided for herein." (Tr. 15:15-19.) The Court asked Mr. Kimm who Mr. DeLalla's independent attorney was when Mr. DeLalla signed the Settlement Agreement in 2005, and whether the independent attorney was in fact Mr. Kimm (Tr. 15:24-25), since Mr. Kimm had previously stated that he was Mr. DeLalla's "personal lawyer" in 2005 (Tr. 13:15-17). Mr. Kimm admitted that Mr. DeLalla did sign the Settlement Agreement (Tr. 16:9-11), but denied "any involvement in giving [Mr. DeLalla] any advice" (Tr. 16:16-18), and contended that he believed there was no independent attorney present for Mr. DeLalla at the settlement stage of the underlying action (Tr. 16:21-24). The Court pressed for an answer by asking, "Then why did he sign this? . . . [Y]our client wanted to settle this. That's why he signed this agreement" (Tr. 17:1, 18:10-11), and later, "I'll tell you, Mr. Kimm, something I believe in, and that's holding people to documents they sign, okay? So your client signed the document. If he wants to try and get around it, he'd better have very good reasons why that document is not binding on him" (Tr. 30:20-24). Mr. Kimm contended that Mr. DeLalla signed the Settlement Agreement "[b]ecause he was told to," and that "he was coerced into doing that" (Tr. 17:2, 18:12.) The Court pointedly asked if Plaintiffs were specifically alleging fraud. (Tr. 17:5-6.) Mr. Kimm responded, "I think we did, Judge." (Tr. 17:7.) The Court responded, "You did -- not in your complaint. You alleged it in your brief but not in your complaint." (Tr. 17:8-9.)

The Court noted its concern that, without detailed facts and a specific allegation of fraud in the actual Complaint, Mr. Kimm's Complaint was "simply not plausible," (Tr. 18:23-25, 19:1-24), alluding to the "plausibility standard" of pleading under Twombly and Iqbal.*fn1 The Court noted Plaintiffs' failure to assert any reasons, facts or motive for his insurance company and his attorney to conspire to deny Plaintiffs' representation or cause them injury. (Tr. 18:25-19:22.) The Court noted that "[Mr. Kimm] said a number of things there [in the Complaint] which are just inconsistent with his allegations here [at oral argument]." (Tr. 23:12-13.) The Court advised Mr. Kimm, "This is one of those cases . . . where a notice pleading is not going to work and you're going to have to file detailed allegations," (Tr. 26:24-27:3) and, "you're going to have to detail all these allegations about coercion and about the circumstances of signing this." (Tr. 19:14-16.)

To give Plaintiffs a chance to remedy the inconsistencies between the Complaint and Mr. Kimm's statements at oral argument, to allow Plaintiffs to allege facts supporting the conclusory allegations, and to allow Plaintiffs to allege fraud properly under Federal Rule of Civil Procedure 9(b), the Court ordered Plaintiffs to file a detailed amended complaint specifically explaining a motive for Defendants to conspire together against Plaintiffs. (Tr. 19.) The Court explained further:

"[I]t may be that Mr. DeLalla has a valid claim. I'm not passing on the validity of his claim. I just procedurally, I don't like -- I can't let this complaint go forward the way it's written in view of the settlement agreement.

I'm not -- I mean, I'm not going to pass judgment on the substance of the claims, except to note that the way they are now, they're implausible. And I think you're going to have to have a theory of this case as to how your client could sign that, and if you want to allege fraud you can but you'd better be prepared to back it up or . . . or you may be facing Rule 11 motions, Mr. Kimm. All right? You've got to take this very seriously. Because you were -- from the correspondence that I saw, you were very much involved here. . . . I just want to tell you that the way I look at this, you are likely to be a witness if this case went to trial. And if that's the case, then you can't be the lawyer. So I'm just warning you that you ought to give very serious ethic consideration to whether you should have another -- whether another lawyer should represent Mr. DeLalla as attorney of record in this case." (Tr. 27:20-24, 28:14-29:14.)

Defense counsel protested allowing Plaintiffs to file an amended complaint, stating, "I see no point in giving these plaintiffs another opportunity . . . . I think the Court conceptually could resolve the issues raised." (Tr. 21:7-8, 22:5-6.) The Court responded, "No, I can't do that. I -- I'm not going to do that. . . . He states a claim." (Tr. 22:7-9, 23:1.) When defense counsel continued to press for dismissal, saying, "[t]here's no claim" (Tr. 23:2), the Court replied that "the bald allegations of his complaint state a claim. State a claim for malpractice, state a claim for contract. . . . Look, I understand why you want to shortcut this, but I don't think I can do that" (Tr. 23:3-4, 27:17-18). The Court refused Defendants' repeated requests that the Complaint be dismissed (Tr. 21-33), and stated repeatedly that the Court had to assume the Plaintiffs' allegations were true (Tr. 21:15-16, 23:15-16) and could not grant Defendants' motions without allowing Plaintiffs to have discovery (Tr. 21:19-20, 22:18-19, 33:4-7).

Instead of dismissing the case as Defendants repeatedly requested, the Court resolved the oral argument by denying the Defendants' motions without prejudice, ordering Plaintiffs to file an amended complaint within thirty days, and allowing ...


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