922 F. Supp. 2d 800
D. Minn.2013Background
- Afremov is a founder of AGA Medical Corporation who was terminated from employment in 2002 and hired LaFond of Sulloway & Hollis to represent him in a state-court action against the other founders.
- In the state action, Afremov and his lawyers developed a 'rug story' alleging kickbacks from AGA suppliers; Afremov admitted the rug story was false but the defense contends who conceived it remains disputed.
- Afremov filed false tax returns under penalty of perjury to support the rug story; he later pleaded guilty to multiple federal tax-count charges.
- During the criminal investigation, S & H and LaFond incurred and paid fees on Afremov’s behalf, and Afremov ultimately was paying multiple sets of defense fees (civil, criminal, and related counsel).
- Afremov’s state-court action concluded with a $300 million shareholder buyout in Afremov’s favor, and he paid a $7.4 million success bonus to S & H, which was distributed to its attorneys.
- Afremov later sued S & H, LaFond, Harrington, and Lonergan seeking to recover millions in fees and alleging fiduciary breaches, concealment, and fraud in connection with fee arrangements and the rug-story strategy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraudulent transfer under UFTA | Afremov alleges actual/constructive fraud from the 2005 bonus | LaFond argues no badges of fraud and value received was equivalent | Summary judgment for LaFond on fraudulent-conveyance claim (no actual/constructive fraud shown) |
| Overbilling and account stated | Afremov claims excessive billing and improper fee arrangements | Accounts stated bar the claim due to assent from delayed objection | Grants summary judgment for defendants on overbilling/account-stated claim |
| Fraudulent/Negligent concealment | Afremov alleges concealment of risks and material facts by LaFond | Some concealment claims fail absent justifiable reliance or damages | Partial grant of summary judgment; most concealment claims dismissed except potentially fraud-by-omission regarding control of AGA (limited for certain provisions) |
| Malpractice claims barring under § 544.42 (expert affidavit) | Afremov asserts malpractice by LaFond and seeks related relief | Affidavit requirements and safe-harbor provisions apply; Harrington/Lonergan cannot be sued without compliant expert disclosure | Harrington and Lonergan’s motion granted; claims against them dismissed with prejudice; LaFond/ S&H partial summary judgment retained on select issues |
Key Cases Cited
- Gilchrist v. Perl, 387 N.W.2d 412 (Minn. 1986) (fee-forfeiture factors under MinmStat. § 549.20, subd. 3 (context))
- Cherne Contracting Corp. v. Wausau Ins. Cos., 572 N.W.2d 339 (Minn. Ct. App. 1997) (account stated and reliance concepts in billing disputes)
- New Horizon Enters., Inc. v. Contemporary Closet Design, Inc., 570 N.W.2d 12 (Minn. Ct. App. 1997) (burden on proving actual or constructive fraud under UFTA)
- In re Sherman, 67 F.3d 1348 (8th Cir. 1995) (badges of fraud alone not enough for actual fraud)
- Brown-Wilbert, Inc. v. Copeland Buhl & Co., 732 N.W.2d 209 (Minn. 2007) (safe harbor provisions for expert affidavit compliance)