0:19-cv-03152
D. MinnesotaSep 29, 2020Background
- Protégé Biomedical engaged Duff & Phelps in Dec. 2017 under a New York–governed Engagement Agreement that disclaimed any fiduciary duty and limited liability to the corporate firm (no personal liability for employees).
- Duff & Phelps (through MD Philip Smith) prepared an NDA for a potential buyer (signed by Doug Schillinger of DW Healthcare) and arranged a Feb. 9, 2018 call during which Protégé disclosed confidential information.
- Protégé later alleged Z‑Medica (via Schillinger) misappropriated that information to obtain a patent and backed out of a deal; Protégé previously sued Z‑Medica and that action was dismissed without prejudice and later settled.
- Protégé sued Duff & Phelps and Smith in state court alleging breaches of contract, fiduciary/agency duties, malpractice/unauthorized practice of law, declaratory relief, and mandamus. Defendants removed, arguing Smith was fraudulently joined.
- The district court held Smith was fraudulently joined (no colorable claims against him), dismissed all claims against Smith, denied remand, and found Protégé failed to state plausible claims against Duff & Phelps but stayed dismissal pending a magistrate’s ruling on Protégé’s post‑argument motion to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Smith was fraudulently joined (remand) | Smith is a proper local defendant subject to Protégé's claims | No reasonable basis exists to hold Smith liable personally; removal proper | Smith was fraudulently joined; remand denied. |
| Whether Smith is personally liable on the Engagement Agreement | Smith signed/acted as agent and can be held personally liable for contract breach | New York law requires clear evidence agent intended personal liability; Agreement disclaims employee liability | No colorable basis for personal contract liability; claim against Smith dismissed. |
| Whether Protégé states tort or fiduciary claims against Smith (fiduciary, agency breach, malpractice, unauthorized practice) | Duff & Phelps/Smith owed duties and breached them; unauthorized practice possible | Agreement disclaims fiduciary duty; waiver of ordinary negligence; Protégé did not request or receive legal advice from Smith | Claims not colorable: fiduciary, agency, malpractice, and unlawful practice claims dismissed as implausible. |
| Whether Duff & Phelps breached confidentiality or stated plausible claims | Duff & Phelps failed to prevent disclosure/misuse of confidential info and breached duties | Engagement Agreement protects against such tort claims and contains no obligation to prevent Protégé's disclosure; ordinary negligence waived | Protégé fails to plausibly allege Duff & Phelps disclosed info or had contractual duty to prevent Protégé’s disclosure; claims against firm deficient; dismissal stayed pending amendment ruling. |
Key Cases Cited
- Filla v. Norfolk S. Ry. Co., 336 F.3d 806 (8th Cir. 2003) (fraudulent‑joinder doctrine and standard)
- Murphy v. Aurora Loan Servs., LLC, 699 F.3d 1027 (8th Cir. 2012) (no reasonable basis test for fraudulent joinder)
- Savoy Record Co. v. Cardinal Export Corp., 15 N.Y.2d 1 (N.Y. 1964) (agent‑signatory personal liability requires clear intent)
- Paribas Properties, Inc. v. Benson, 146 A.D.2d 522 (N.Y. App. Div. 1989) (example where agent was held personally liable because contract expressly imposed such liability)
- Lerner v. Amalgamated Clothing & Textile Workers Union, 938 F.2d 2 (2d Cir. 1991) (personal liability of signatory is rare; requires overwhelming evidence)
- City of New York v. 611 W. 152nd St., Inc., 273 A.D.2d 125 (N.Y. App. Div. 2000) (New York does not recognize negligent or gross‑negligent breach of contract)
- Colnaghi, U.S.A., Ltd. v. Jewelers Prot. Servs., Ltd., 611 N.E.2d 282 (N.Y. 1993) (New York enforces contractual exculpation for ordinary negligence)