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A Philadelphia Common Pleas judge has overturned a jury’s award of $2.5 million in a legal malpractice suit against attorney John F. Hunt in which a health care company accused Hunt of acting with a conflict of interest in a corporate acquisition. Judge Jacqueline F. Allen has not yet written an opinion in the case of Capital Care Corp. v. Hunt, but announced from the bench in a recent hearing that she was granting a defense motion for judgment notwithstanding the verdict. Allen said her ruling was grounded on the arguments made in post-trial briefs by defense attorneys Michael N. Onufrak and Geoffrey Paul Huling of Philadelphia-based White and Williams. For plaintiff Capital Care and its lawyers — Arthur W. Lefco and Patricia Sons Biswanger of Cozen O’Connor — the ruling marks yet another setback in a string of court battles that has lasted nearly 16 years. The lawsuits stem from a series of business transactions among three companies — Capital Care, Hospital Capital Corp. and Superior Care Inc. — all of which were in the home health care business. In April 1986, Capital Care and HCC agreed to use their best efforts to find a suitable person or entity to acquire Capital Care. One month later, HCC and Superior Care were combined through a “reverse merger,” and the resulting entity was renamed Lifetime Corp. And five months after that, Lifetime acquired Capital Care’s operating assets pursuant to an asset purchase agreement. Ever since, Capital Care has been crying foul over the sale, claiming its shareholders were cheated because its assets were fraudulently undervalued. In the sale, Lifetime agreed to purchase Capital Care’s two operating subsidiaries for 359,000 shares of Lifetime stock, the assumption of certain debts of Capital Care and other consideration. The stock purchase agreement was approved by Capital Care’s shareholders at a June 1987 shareholders meeting. In 1988, Capital Care filed suit in U.S. District Court against 11 defendants. But in 1990, Senior U.S. District Judge John P. Fullam dismissed the entire case, finding that all of Capital Care’s claims were precluded by a release provision in the stock purchase agreement and Capital Care’s ratification of the agreement. Capital Care regrouped and filed a nearly identical lawsuit in the Philadelphia Court of Common Pleas. In 1999, Capital Care struck a settlement with Olsten Corp., the successor to Lifetime. Judge Gene Cohen later granted a directed verdict in Hunt’s favor on all of Capital Care’s remaining claims. But the Pennsylvania Superior Court reversed and ordered that claims against Hunt relating to his alleged post-Oct. 23, 1986, conduct should go to trial. At trial in January and February 2002, Capital Care pursued three claims against Hunt — fraud, breach of fiduciary duty and legal malpractice, according to court documents. The fraud claim was premised on an allegation that the stock purchase agreement was never validly approved by Capital Care’s shareholders, court records indicate. Specifically, Capital Care alleged in court papers that Hunt misrepresented at the June 1987 Capital Care shareholders meeting that a stock proxy granted by Capital Care’s principal shareholder, Butler Holding Co., in favor of Lifetime was extended when it allegedly had expired. According to Capital Care, the alleged fraud allowed Lifetime to vote Butler’s shares in favor of the stock purchase agreement without authorization. Capital Care’s legal malpractice and breach of fiduciary duty claims were both premised on the allegation that Hunt had an attorney-client, or other fiduciary, relationship with Capital Care after Oct. 23, 1986, court documents state. Lefco told the jury that Hunt falsely claimed that he had withdrawn as counsel for Capital Care and represented only HCC in the sale agreement. But Hunt’s claim that another lawyer had come in to represent Capital Care was proven false, Lefco continued, when that lawyer testified that Hunt had never met with him. Hunt also continued to represent Capital Care after the agreement was struck, Lefco said, by handling questions from the Securities and Exchange Commission and later handling issues at a meeting of Capital Care’s shareholders whose approval was required to complete the sale. Lefco told the jury that HCC had previously valued Capital Care’s assets as being worth 1 million shares of its stock and a $4 million bond. But the sale went through for just 359,000 shares and no bond, he said. In its verdict, the jury found that Capital Care failed to prove any damages on its fraud and breach of fiduciary duty claims, but awarded Capital Care $2.5 million against Hunt on the legal malpractice claim. In their post-trial brief, Onufrak and Huling argued that the evidence was too thin to support any damages award. At best, they said, Capital Care showed that Hunt had undertaken three actions after Oct. 23, 1986, that could be considered legal work for Capital Care. But the evidence at trial, they said, “established that Capital Care suffered no damages stemming from those activities of Hunt.” And the jury’s verdict, they said, established that Capital Care suffered no damages from any alleged false statements made by Hunt. “If Capital Care suffered no damages from false statements made by Hunt, it is inconceivable that Capital Care somehow could have suffered $2.5 million in damages stemming from Hunt’s post-Oct. 23, 1986 practice of law,” they wrote. Onufrak and Huling also argued that the jury’s verdict violated the law of the case doctrine, the doctrine of collateral estoppel and Pennsylvania law on ratification. Even if the stock purchase agreement wasn’t validly approved by Capital Care’s shareholders, the defense lawyers said, Judge Fullam had already explicitly found that Capital Care “ratified the entire transaction” and is bound by it. And even if Capital Care could re-litigate the ratification issue, Onufrak and Huling argued that it still could not prevail because, “as a matter of Pennsylvania law, Capital Care’s own corporate records indisputably reflect that it accepted the benefits of the October 1986 Agreement, with full knowledge of its claims that the Agreement had been induced by ‘fraud,’ constituting a ratification of the entire transaction.” Finally, Onufrak and Huling argued that Capital Care effectively released Hunt when it struck a settlement with HCC and Lifetime’s successor, Olsten. In a joint tortfeasor release, Onufrak and Huling said, Capital Care released Lifetime and HCC, “as well as their parent corporations, subsidiaries, affiliates, predecessors, successors, assigns, subdivisions, shareholders, present and former directors, officers, employees and agents” from any further liability to Capital Care. Lefco argued that the release specifically excluded Hunt — a former director and in-house general counsel of Lifetime — from the scope of its protection. But Onufrak and Huling argued that, under Pennsylvania law, the “attempted exclusion” of Hunt from the protections of the release was invalid. The Pennsylvania Supreme Court, they said, has held that an agent and its principal are not joint tortfeasors under the Uniform Contribution Among Tortfeasors Act when the liability of the principal is vicarious and not based upon the principal’s independent actionable fault. As a result, they said, the high court held that a plaintiff’s release of an agent, even where it purports to preserve the plaintiff’s claim against the principal, applies to both agent and principal. In a subsequent decision, they said, the Superior Court has held that the converse is also true — that a release in favor of a vicariously liable principal acts to preclude maintenance of an action against the primarily liable agent. On the basis of that case law, they said, the release given by Capital Care to Lifetime “runs to the benefit of Hunt, regardless of Capital Care’s attempted exclusion of Hunt.”

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