[00:00:00] Speaker 02:
Good morning, Your Honors.

[00:00:02] Speaker 02:
Stephen Eisenberg on behalf of Appellant Fresh Mix.

[00:00:07] Speaker 02:
With regard to time, Your Honor, I would like to try to reserve five minutes in rebuttal.

[00:00:15] Speaker 02:
Sorry, Your Honor.

[00:00:16] Speaker 02:
To the extent I can reserve about five minutes for rebuttal.

[00:00:20] Speaker 02:
See how that goes.

[00:00:21] Speaker 02:
Your Honors, this is an interesting and complicated case when you look at it as a whole, but when you peel back the layers,

[00:00:30] Speaker 02:
It's rather a very simple case that I think the district court got muddled in the complexities.

[00:00:36] Speaker 02:
So we have three different proceedings, Your Honor.

[00:00:40] Speaker 02:
We have an arbitration, we have a state court case, and we have a bankruptcy proceeding.

[00:00:46] Speaker 02:
So the defendants, the vast majority of them, represented fresh mix, as well as other entities.

[00:00:53] Speaker 00:
The potential malpractice claims apply to all three.

[00:00:58] Speaker 02:
So no, Your Honors, and that's one of the complexities.

[00:01:01] Speaker 02:
The malpractice case applies to the bankruptcy proceedings.

[00:01:06] Speaker 02:
And so you have these two prior proceedings in which these attorneys, a group of these attorneys represented fresh mix as well as others.

[00:01:15] Speaker 02:
You then have a bankruptcy proceeding, Your Honors, and it's very simple boiling down.

[00:01:19] Speaker 02:
Look at the bankruptcy proceeding.

[00:01:20] Speaker 02:
Who's the creditor?

[00:01:22] Speaker 02:
Get fresh.

[00:01:24] Speaker 02:
Who is the debtor?

[00:01:27] Speaker 02:
Fresh mix.

[00:01:28] Speaker 02:
Now we get this complication that the other side and the district court got caught in.

[00:01:32] Speaker 02:
Who were Mr. Ligudium Ponder?

[00:01:35] Speaker 02:
Well, in the bankruptcy, Mr. Ligudium Ponder are the equity holders of Freshmix.

[00:01:41] Speaker 00:
In fact, they fight... Well, they're not the only equity holders of Freshmix.

[00:01:45] Speaker 02:
Getfresh was a creditor in that bankruptcy, Your Honor.

[00:01:47] Speaker 00:
Well, yes, but they also, as a matter of fact, were equity holders.

[00:01:53] Speaker 02:
Yes, but how did they behave in the bankruptcy, Your Honors?

[00:01:56] Speaker 02:
They were accredited.

[00:01:57] Speaker 04:
Before the settlement, Lagudi and Ponder were minority owners who did not have the right to bring the legal malpractice claims at issue.

[00:02:06] Speaker 04:
After the settlement, they purported to have the right to bring the claims, but Nevada law prohibits the assignability of legal malpractice claims, regardless of how the assignment is accomplished.

[00:02:18] Speaker 04:
Why isn't

[00:02:20] Speaker 04:
that what took place here is simply Lagudi and Ponder trying to make an end run to Nevada law.

[00:02:28] Speaker 02:
So what happened, Your Honors, is Lagudi and Ponder actually exercised their corporate rights, their membership rights in the LLC prior to any settlement.

[00:02:41] Speaker 02:
In 2021-2022, as a result of Getfresh's breach of the operating agreement, they became the sole owners of Freshmix during the pendency of the bankruptcy.

[00:02:53] Speaker 00:
But nobody ever declared them such.

[00:02:55] Speaker 00:
So that's a... You're saying that we could go back now and look at the operating agreement and make a determination that they should have been recognized as owners during the bankruptcy, but they weren't in fact recognized.

[00:03:09] Speaker 02:
It's alleged in paragraph 207 of the complaint that they exercised their rights under 8.3 of the operating agreement during the bankruptcy and became the sole owners.

[00:03:19] Speaker 00:
How did they exercise their rights?

[00:03:21] Speaker 02:
They sent a note, a notice to the other side.

[00:03:26] Speaker 02:
They declared get fresh and in default.

[00:03:31] Speaker 02:
They sent a notice and they sent payment as required under the operating agreement.

[00:03:35] Speaker 02:
So I can tell you the trustee did not want to exercise

[00:03:39] Speaker 02:
his rights in buying the company, the remaining units of the company, but Mr. Lagudy and Ponder did.

[00:03:46] Speaker 02:
Now, I can tell you because I represented the estate.

[00:03:50] Speaker 02:
So, I was there while this happened, and in fact, Mr. Lagudy and Mr. Ponder were the remaining owners of Freshmix.

[00:03:58] Speaker 00:
Now, there's an allegation— You said the trustee didn't want him to want

[00:04:02] Speaker 02:
Didn't want to exercise to own more fresh mix, own units of fresh mix because he owned the rights of fresh mix already in a bankruptcy.

[00:04:10] Speaker 00:
So it's a... Did the trustee bring a malpractice claim?

[00:04:14] Speaker 02:
So the trustee attempted to in state court.

[00:04:16] Speaker 02:
We were told that it was premature.

[00:04:18] Speaker 02:
And so the trustee continued to do discovery in the bankruptcy proceeding.

[00:04:22] Speaker 02:
And the bankruptcy proceeding actually resolved with a bad faith dismissal before all the discovery issues were resolved.

[00:04:30] Speaker 02:
So the turnover records required under 7.055 and ethics, 1.16 of ethics, had not been concluded.

[00:04:40] Speaker 02:
There were motions to compel pending.

[00:04:43] Speaker 02:
The court had already ordered that FreshMix was entitled to all of its records.

[00:04:48] Speaker 02:
The court had already concluded that, I'll say, the arbitration and state court attorneys had indeed represented FreshMix as well as GetFresh.

[00:04:57] Speaker 02:
The state court attorneys opposed those positions.

[00:05:00] Speaker 03:
Sorry, can I just interrupt you?

[00:05:01] Speaker 03:
It seems like the gist of what you're arguing is that the settlement didn't actually do anything, because it was all already done.

[00:05:08] Speaker 03:
And that seems a little bit implausible.

[00:05:10] Speaker 03:
So what do you think the settlement did, if this is your argument?

[00:05:15] Speaker 02:
So what I'll do is let me boil it down a little bit more, Your Honors.

[00:05:19] Speaker 02:
I think Nevada state law is best stated as an assignment of a legal malpractice claim to an adversary.

[00:05:29] Speaker 02:
from the same litigation that gives rise to the malpractice claim violates public policy.

[00:05:35] Speaker 02:
That is the actual Nevada standard.

[00:05:38] Speaker 02:
So what we have here is, was there a de facto assignment of rights?

[00:05:43] Speaker 02:
We all know, we all agree, Ligudi and Ponder were owners of Freshmix at all times.

[00:05:50] Speaker 04:
Sorry, can I just repeat my question first?

[00:05:55] Speaker 03:
I didn't understand your answer to my question.

[00:05:57] Speaker 03:
What did the settlement do?

[00:05:58] Speaker 02:
Sorry.

[00:05:58] Speaker 02:
So the settlement practically confirmed exactly what had happened during the scope of the bankruptcy.

[00:06:04] Speaker 03:
So you are saying the settlement did nothing.

[00:06:06] Speaker 03:
So the settlement... Well, they could pay $25 million as well.

[00:06:09] Speaker 02:
Well, so Ligudium Ponder and Getfresh, there were some allegations of monies being taken out inappropriately.

[00:06:16] Speaker 02:
by Get Fresh from Freshmix that belonged to the goody and ponder.

[00:06:20] Speaker 02:
Those elements were resolved.

[00:06:22] Speaker 02:
The settlement, as I believe Peace and Olive Ice pointed out, the settlement itself, and as Get Fresh pointed out in the settlement agreement, Get Fresh surrendered all right title and interest to Freshmix.

[00:06:36] Speaker 02:
By their surrender of their units, whatever they had, whatever it was that was left, which is a factual issue that has to be ferreted out,

[00:06:46] Speaker 02:
whatever they had left went back to Freshmix.

[00:06:49] Speaker 02:
It didn't go to Lagudian Ponder.

[00:06:51] Speaker 02:
So the practical is the only remaining owners of the company are Lagudian Ponder.

[00:06:56] Speaker 02:
Remember, Getfresh acted as a creditor to attack its own entity.

[00:07:02] Speaker 02:
That was a violation of the operating agreement.

[00:07:04] Speaker 02:
So yes, in a weird way, Your Honor, Lagudian Ponder had acquired whatever rights Getfresh had during the bankruptcy.

[00:07:11] Speaker 02:
Whatever was potentially left for sake of clarity, let's call it,

[00:07:16] Speaker 02:
Getfresh had to wash its hands of whatever it was touching, that it still touched.

[00:07:21] Speaker 02:
We don't know what that is actually.

[00:07:23] Speaker 02:
That hasn't been litigated.

[00:07:24] Speaker 02:
But the complaint alleges that Lagudy and Ponder acquired Getfresh's interests as a result of their default under the LLC operating agreement.

[00:07:36] Speaker 02:
So I think Oceania is what the district court looked to.

[00:07:40] Speaker 02:
The dissent in Oceania appropriately points out,

[00:07:45] Speaker 02:
What about corporate formalities?

[00:07:47] Speaker 02:
And that's the weird thing in this case, Your Honor, is that the corporate formalities in this case get fresh, breached its duties, and it had consequences to it.

[00:07:56] Speaker 02:
But the consequences were before this settlement.

[00:07:59] Speaker 03:
So can I just ask those?

[00:08:00] Speaker 03:
So I think one of the big policy concerns in these cases about not assigning malpractice claims is that in the negotiation of a settlement,

[00:08:12] Speaker 03:
there becomes a conflict of interest between the lawyers representing the one side here, not Luguti, the other side.

[00:08:22] Speaker 03:
So the lawyers, all these lawyers representing that side have to suddenly both

[00:08:29] Speaker 03:
negotiate for that side and save themselves from this problem.

[00:08:33] Speaker 03:
And I don't understand how that policy problem didn't exist in the negotiation of this settlement.

[00:08:38] Speaker 03:
That policy is driving this doctrine, I think, and it seems to exist here.

[00:08:43] Speaker 03:
But correct me if I'm wrong.

[00:08:44] Speaker 02:
So let me take you back to another moment in this case that was pointed out by Brownstein Hyatt.

[00:08:55] Speaker 02:
I'm going to take you back to 2019 before the involuntary.

[00:08:59] Speaker 02:
And this is at Brownstein Hyatt, BHFS, ER 34.

[00:09:04] Speaker 02:
At this time, the lawyers in question have a duty to both get fresh and fresh mix.

[00:09:08] Speaker 02:
I think we agree to that.

[00:09:09] Speaker 02:
Joint representation.

[00:09:12] Speaker 02:
This is Jim Picinelli to the entire team at that time.

[00:09:16] Speaker 02:
On a very different note, I'm not going to read you the whole thing, but I think it summarizes the problem.

[00:09:20] Speaker 02:
The conflict already existed.

[00:09:23] Speaker 02:
This duty of loyalty was already breached.

[00:09:25] Speaker 02:
So this idea of them being in a conflict because of a settlement,

[00:09:29] Speaker 02:
That ship had sailed, Your Honor.

[00:09:33] Speaker 02:
On a very different note, I would like us to talk very early next week about the options including the bankruptcy option.

[00:09:39] Speaker 02:
I'm now going to skip.

[00:09:41] Speaker 02:
And this is, again, 34.

[00:09:44] Speaker 02:
And we need to consider the impact and implicability, if any, of the supermajority consent requirement for extraordinary events.

[00:09:51] Speaker 02:
That's the bankruptcy.

[00:09:53] Speaker 02:
They needed Mr. Ligudi's approval to put this company into bankruptcy.

[00:09:56] Speaker 00:
That's why they brought in involuntary bankruptcy.

[00:09:59] Speaker 00:
in the guise as creditor.

[00:10:02] Speaker 00:
And that, in fact, seems very important to me because they were not in the bankruptcy operating as the controlling entity of FreshMix, but instead as adverse to it.

[00:10:19] Speaker 02:
So the controlling, you get Fresh, was the adversary.

[00:10:23] Speaker 02:
And the policy is you can't assign to the adversary.

[00:10:27] Speaker 03:
Get fresh is the adversary, not fresh mix, not le but I guess I think this other policy of trying to protect the legal profession from this conflict that happens when you start negotiating this type of settlement.

[00:10:40] Speaker 03:
I guess I didn't understand your answer.

[00:10:41] Speaker 03:
Your answer was they already had conflicts and I understand that's the malpractice claim, but the conflict that is happening when you're negotiating the settlement I think is a big part of this doctrine.

[00:10:51] Speaker 02:
So it may be boiled down your honor a little bit more simply and I apologize.

[00:10:56] Speaker 02:
None of these parties to the settlement owned the malpractice claim.

[00:10:59] Speaker 02:
The malpractice claim was in the bankruptcy estate.

[00:11:02] Speaker 02:
That belonged to Freshmix, and the trustee was not a party.

[00:11:06] Speaker 02:
Any considerations in this case?

[00:11:09] Speaker 02:
In fact, the court on January 12th, after the settlement was done, on January 12th, 2024, says, okay, the estate can pursue this litigation, this malpractice claim.

[00:11:21] Speaker 02:
But if I dismiss the case, it's going to go back to Freshmix, whomever that is.

[00:11:25] Speaker 02:
So the deal was done.

[00:11:27] Speaker 02:
The estate that wasn't part of this deal now returns the asset to FreshMix, to the only people who were fighting on the same side as FreshMix, who were aligned with FreshMix.

[00:11:41] Speaker 02:
And at that point in time, when this asset is returned,

[00:11:44] Speaker 02:
Whatever the ownership is of fresh mix, it is.

[00:11:47] Speaker 02:
There's not an assignment of ownership.

[00:11:49] Speaker 02:
So this idea of de facto assignment is what we're looking to because we know there isn't an assignment of a, there's not an assignment of the claim.

[00:11:57] Speaker 02:
The claim returns from the bankruptcy estate to fresh mix.

[00:12:01] Speaker 02:
So the assignment issue is not proper under Nevada law.

[00:12:06] Speaker 02:
We have to look to this de facto issue, which Oceania

[00:12:10] Speaker 02:
isn't the same fact pattern here at all.

[00:12:12] Speaker 02:
And that's probably why it's an unreported decision.

[00:12:15] Speaker 02:
But I'd look to the dissent with Tao, where he talks about corporate formalities.

[00:12:20] Speaker 02:
And corporate formalities here are very important.

[00:12:24] Speaker 00:
Can I step back a minute?

[00:12:27] Speaker 00:
Someone along the way raised the question of certifying those questions about a Supreme Court.

[00:12:33] Speaker 00:
What is your position on that?

[00:12:34] Speaker 02:
I would be fine with that, Your Honors, because I think this is complicated because you have

[00:12:39] Speaker 02:
two matters in which the parties are aligned one way.

[00:12:41] Speaker 02:
But you didn't seek certification.

[00:12:43] Speaker 02:
We did not because I believe Oceania is very distinguishable, and I think the judge's decision at the district court was incorrect because you have two matters where you can argue adversity, whatever.

[00:12:56] Speaker 00:
In fact, the Nevada Supreme Court or even the Nevada Court of Appeals has no presidential decision anywhere in this field of de facto

[00:13:08] Speaker 00:
assignments of this nature?

[00:13:11] Speaker 02:
So no, because it's about ownership and an ownership fight that occurred within the context of a bankruptcy where one owner acted as a creditor, adverse to its own company.

[00:13:23] Speaker 00:
I'm saying even more broadly.

[00:13:25] Speaker 00:
No.

[00:13:27] Speaker 00:
More broadly as to this question of attributing what you're calling disregarding the corporate

[00:13:38] Speaker 00:
formalities and finding an asset assignment because of a switch in ownership, essentially, of an entity, a switch of shareholders or members rather than of entities.

[00:13:55] Speaker 02:
Well, I don't think there is a case on point where one group of shareholders is removed because of their misconduct.

[00:14:02] Speaker 00:
Well, even leaving all that aside, I'm saying even on the broader questions here,

[00:14:07] Speaker 00:
like the Oceana kind of situation.

[00:14:10] Speaker 00:
There is no Nevada Supreme Court precedent.

[00:14:13] Speaker 02:
No, there's no Nevada Supreme Court precedent.

[00:14:16] Speaker 02:
The only thing that Nevada was clear about is, again, the assignment of a legal malpractice claim to an adversary.

[00:14:24] Speaker 02:
The bankruptcy legal malpractice claim, Freshmix, Ligudi, and Ponder are aligned.

[00:14:30] Speaker 02:
The courts have decided that.

[00:14:32] Speaker 02:
The bankruptcy court decided their alignment in the Order Against Peace and Advice for turnover.

[00:14:39] Speaker 02:
And the court said Get Fresh was the adversary.

[00:14:41] Speaker 02:
So there's no assignment to Get Fresh.

[00:14:44] Speaker 02:
That's the problem.

[00:14:44] Speaker 02:
So this de facto assignment issue, it would be an issue if Get Fresh got rights.

[00:14:49] Speaker 00:
So Oceana also was very concerned about the fact, and Duro too I think, that the parties would have to switch their positions.

[00:14:57] Speaker 00:
That's not true here.

[00:14:58] Speaker 02:
That is very important, Your Honors.

[00:14:59] Speaker 02:
There was no switch in positions.

[00:15:01] Speaker 02:
GetFresh said FreshMix was worth zero.

[00:15:04] Speaker 02:
FreshMix, Lagudi, and Ponder said GetFresh is worth $80 million.

[00:15:08] Speaker 02:
So there was no switch in position so that... But even as to the malpractice issues that would come up, there was no switch in position.

[00:15:15] Speaker 02:
There was no switch in position, Your Honor.

[00:15:17] Speaker 02:
That's correct.

[00:15:19] Speaker 04:
All right.

[00:15:19] Speaker 04:
Your time is expired, so I'll give you two minutes for the rebuttal.

[00:15:23] Speaker 04:
Thank you, Your Honors.

[00:15:23] Speaker 04:
Thank you.

[00:15:34] Speaker 01:
Good morning.

[00:15:35] Speaker 01:
May it please the Court.

[00:15:36] Speaker 01:
Phil Irwin, appearing on behalf of appellees Pizzanelli-Bice, PLLC, James Pizzanelli, Deborah Spinelli, and Ava Schaeffer.

[00:15:44] Speaker 01:
I will also be presenting argument today on behalf of the other appellees in the case who are all represented by counsel here today.

[00:15:50] Speaker 01:
I can introduce everybody, but it may be better to just jump into it.

[00:15:55] Speaker 01:
I wanted to

[00:15:57] Speaker 01:
briefly address before I start my argument a couple of factual representations about what was in the complaint that were just made by my colleague representing FreshMix.

[00:16:07] Speaker 01:
So it was argued that the malpractice claim only relates to the bankruptcy.

[00:16:11] Speaker 01:
In paragraph 283, for example, he expressly pled that the malpractice claim related to commencing an arbitration as well as a number of other acts.

[00:16:21] Speaker 01:
So we flatly disagree that only the bankruptcy was an issue in the malpractice claims.

[00:16:27] Speaker 01:
Similarly, this notion, and I'll get into this more later in my argument, that the settlement was a formality and didn't accomplish anything because control had been transferred, you know, in 2021 or at some earlier date.

[00:16:42] Speaker 01:
At paragraph 263 of the amended complaint, Freshmix alleged, quote, GFSI parties settle with Ligudi and ponder control of Freshmix transferred to Ligudi.

[00:16:54] Speaker 04:
So the corporation in this case, FreshMix, remains the same entity in name, correct?

[00:17:01] Speaker 04:
So doesn't your case depend on the assumption that FreshMix, as reconstituted after the settlement with the change in shareholders, is somehow a legally different entity than it was before?

[00:17:16] Speaker 01:
I don't know in the context of de facto assignments in violation of public policy on malpractice claims that it needs to be a reconstituted corporate entity.

[00:17:28] Speaker 01:
I think the key is that control of the malpractice claim has transferred to a party that never had the direct relationship with the attorney.

[00:17:39] Speaker 00:
Who's the party?

[00:17:41] Speaker 01:
Excuse me, Your Honor?

[00:17:42] Speaker 00:
To what party has it transferred?

[00:17:44] Speaker 01:
So in this case, which is very similar to the Duro Incorporated v. Rodino matters out of the Northern District of Indiana and the Seventh Circuit, control here in the settlement transferred from Get Fresh Sales Incorporated, which I'll refer to as GFSI, and it transferred to Mr. Lagudi and Mr. Ponder, who were previously minority shareholders.

[00:18:06] Speaker 00:
That does require disregarding the corporate entities.

[00:18:08] Speaker 01:
Excuse me, Your Honor?

[00:18:08] Speaker 00:
That does require disregarding the corporate entities.

[00:18:14] Speaker 00:
That's what's peculiar about this.

[00:18:16] Speaker 00:
I mean, we spend so much time respecting the separateness of the corporate entities, and this whole doctrine, as the dissenter in Oceania pointed out, completely disregards that.

[00:18:32] Speaker 00:
So it's a little bit of a wrench in terms of the way lawyers usually think about corporate entities.

[00:18:38] Speaker 01:
It may be, Your Honor, but I think the public policy concerns are the most important here, and those reasons trump the corporate formalities, which is why the majority in the ocean... So what about certifying this to Nevada Supreme Court and seeing which they care about more?

[00:18:53] Speaker 01:
Well, I think Nevada law, and frankly the law in this area across the country, is uniform.

[00:19:00] Speaker 01:
Nevada has an absolute prohibition against the assignment of legal malpractice claims.

[00:19:05] Speaker 00:
But there is no Nevada Supreme Court case.

[00:19:08] Speaker 00:
about the notion that you are transferring, that you are assigning a claim when it's a single entity that has the claim because the ownership's changed.

[00:19:21] Speaker 00:
And how far that reaches.

[00:19:22] Speaker 00:
I mean, obviously, I mean, these are very small entities and it's possible you could even pierce the corporate veil.

[00:19:30] Speaker 00:
We don't know.

[00:19:31] Speaker 00:
But if you had a, you know, if you have paramount

[00:19:38] Speaker 00:
and CBS and they had a malpractice claim and they changed ownership.

[00:19:46] Speaker 00:
Does the malpractice claim disappear at that point?

[00:19:50] Speaker 01:
On the question of certifying the question of the Nevada Supreme Court, I would note that the Nevada Supreme Court declined to review the Oceania decision.

[00:19:59] Speaker 01:
There was a petition to have that heard by the higher court and they did not do that.

[00:20:03] Speaker 01:
I also think Nevada law is in accord with

[00:20:07] Speaker 01:
other states law, and I'd again point to the Duro v. Rodino decision because those courts relied on the Piccadilly decision from the Indiana Supreme Court, which Nevada has also looked to.

[00:20:19] Speaker 01:
The Nevada Supreme Court looked to that.

[00:20:21] Speaker 04:
Is there any evidence in the record that any of the parties used the legal malpractice claims as a bargaining chip during their settlement agreements?

[00:20:30] Speaker 01:
No, and we don't know anything about the settlement agreement.

[00:20:34] Speaker 01:
We've never even seen it.

[00:20:35] Speaker 01:
We only know what Freshmix alleged, and it very clearly alleged a de facto assignment.

[00:20:41] Speaker 01:
But as far as whether or not it was a collusive settlement, I think the Nevada Supreme Court... Collusive was whom?

[00:20:48] Speaker 01:
Excuse me?

[00:20:49] Speaker 00:
Collusive was whom?

[00:20:49] Speaker 00:
Was Get Fresh?

[00:20:52] Speaker 01:
Our position, Your Honor, is that it doesn't need to be a collusive settlement for this doctrine to apply.

[00:20:58] Speaker 01:
If you look at footnote four of the Oceania decision, as well as the Beaver v. Tomchek decision, the specific facts, and this goes to distinguishing the case law, are not as relevant as the policy considerations.

[00:21:14] Speaker 00:
And in footnote four of the Oceania decision, the majority took issue with the descent of- There's a counter policy decision, which is a malpractice claim, which

[00:21:27] Speaker 00:
rests on a conflict of interest contention, and which was being pursued, or you can tell me whether that's true or not, or at least was considered to be pursued by the trustee in bankruptcy on behalf of the same corporation, is now up in smoke.

[00:21:45] Speaker 00:
Nobody will ever be able to assert it.

[00:21:47] Speaker 00:
Is that right?

[00:21:49] Speaker 01:
That's correct, Your Honor.

[00:21:51] Speaker 01:
And as far as the conflict of interest,

[00:21:53] Speaker 01:
I'm like a broken record, but I would again look to the Duro case which had almost identical facts with the minority and majority shareholders.

[00:22:02] Speaker 01:
There was also multiple, you know, motions to disqualify claiming a conflict of interest.

[00:22:06] Speaker 00:
What's strange about this case is that the majority shareholder with regard to the bankruptcy was adverse to its own subsidiary, if you call it a subsidiary, because it was treating

[00:22:18] Speaker 00:
If it had brought a voluntary bankruptcy, it would have been a different story.

[00:22:23] Speaker 00:
But it brought an involuntary bankruptcy purported to be a creditor of its own sub-entity.

[00:22:32] Speaker 00:
And so collusion under those circumstances seems extremely far-fetched.

[00:22:39] Speaker 00:
And the fact that the entity in the guise of the bankruptcy of state was

[00:22:49] Speaker 00:
Pursuing the malpractice suggests that it has independent merit, and it only went away because the bankruptcy was an invalid bankruptcy.

[00:23:01] Speaker 00:
If it had been, according to the bankruptcy judge, the bankruptcy judge dismissed it as an improper bankruptcy.

[00:23:07] Speaker 00:
If it had continued as a bankruptcy, the malpractice claims would have continued.

[00:23:12] Speaker 01:
Potentially, Your Honor, the Trustee never filed malpractice claims.

[00:23:15] Speaker 00:
No, but he was trying to, as I understand.

[00:23:17] Speaker 04:
So would adopting your position mean that courts would have to sort out all of the various percentages of shareholder interests in every case like this one in order to apply the rule prohibiting assignments of legal malpractice claims?

[00:23:33] Speaker 04:
It doesn't seem like a workable practice.

[00:23:37] Speaker 04:
Wouldn't a formal rule that doesn't require courts to look under the corporate hood be more easier to administer?

[00:23:48] Speaker 01:
I don't think so, Your Honor, and I think that's borne out by the case law in this area, not just in the Oceania and Indiana, but you also have the Kenco decisions out of Washington, decisions out of Oklahoma and Kentucky, where the law is uniform.

[00:24:02] Speaker 01:
And these types of de facto assignments have been done through a federal court order transferring control or transferring that equity or selling, you know, or gifting, you know, the adverse party 50 percent so they can pursue the claims.

[00:24:17] Speaker 01:
Regardless of the specific facts, I think courts have been able to kind of see through this, and in this particular case, it's right in the amended complaint.

[00:24:26] Speaker 01:
I mean, Freshmix made it very clear that the settlement agreement, which resolved the claims between the adversaries, transferred control from the majority shareholders to the minority shareholders.

[00:24:39] Speaker 01:
There was a waiver of attorney-client privilege, which again is a hallmark of a de facto assignment in violation of public policy.

[00:24:48] Speaker 01:
The GFSI waived privilege in the settlement agreement, which these courts, Nevada Supreme Court, or not the Nevada Supreme Court, the Seventh Circuit, Indiana, these other decisions have all found that that is a hallmark of a de facto assignment against public policy.

[00:25:08] Speaker 01:
All of these allegations are expressed in the face of the amended complaint.

[00:25:13] Speaker 01:
So for Freshmix to come in here and say, oh, it transferred earlier because we sent this notice, or it happened, you know, as a result of the bankruptcy, I don't think Freshmix can make those arguments because it has binding judicial admissions in its complaint about the effect of the settlement.

[00:25:31] Speaker 00:
But under that law, as I understand it, it's not just legal malpractice claims that aren't assignable.

[00:25:37] Speaker 00:
So does this become now a rule about any personal injury claim?

[00:25:44] Speaker 01:
Well, I think it's limited to the facts of the case.

[00:25:46] Speaker 01:
And this is legal malpractice.

[00:25:48] Speaker 01:
And Nevada law is absolute here.

[00:25:52] Speaker 01:
There are no exceptions to Nevada law in this area.

[00:25:55] Speaker 01:
And it doesn't matter what the specific facts of the case are.

[00:26:01] Speaker 01:
You cannot assign a legal malpractice claim for a number of policy reasons.

[00:26:07] Speaker 01:
And it's not related to the specific facts of whether those policy concerns are present.

[00:26:13] Speaker 01:
It is the risk.

[00:26:14] Speaker 01:
If the court looks at Beaver v. Tomchak, the Nevada Supreme Court... Well, that makes... Yes, of course.

[00:26:20] Speaker 00:
But as to the question of whether that principle applies under these circumstances, you would think you would go back to the policy considerations.

[00:26:29] Speaker 00:
In other words, the circumstances here are not an assignment.

[00:26:36] Speaker 00:
asserted de facto assignment accomplished through the change of ownership of an extant entity, which apparently had reason to be considering and was considering the malpractice claims beforehand.

[00:26:55] Speaker 00:
I gather also that this rule about not transferring claims is not obviously applicable to claims that already exist.

[00:27:06] Speaker 00:
incipient claims, is that right?

[00:27:10] Speaker 00:
In other words, if the case is already in court, it's not clear how Nevada law treats those.

[00:27:19] Speaker 01:
If the claims had already been filed and then control of the company transfers, I have not seen a case like that, Your Honor.

[00:27:28] Speaker 01:
What I have seen, though, is that every court that has addressed these de facto assignments has come down one way.

[00:27:34] Speaker 01:
And I have also seen FreshMix not cite a single case in support of its position.

[00:27:39] Speaker 01:
Judge Berzani, you pointed out earlier that you can distinguish the facts of just about any case, but you get a lot more mileage distinguishing facts when you're pointing at something that helps your position.

[00:27:50] Speaker 01:
Here, all FreshMix has done is distinguish cases not just from the Nevada Court of Appeals, but from several other states and a sister circuit of this court, all coming down in the exact same place, which is

[00:28:03] Speaker 01:
If there is a de facto control where the control of the entity holding the claims transfers, then that's an invalid assignment in violation of public policy.

[00:28:14] Speaker 01:
And there's just no dispute under the law there.

[00:28:17] Speaker 00:
Do you regard that rule as at least limited to circumstances in which the adversaries were, the parties were adversaries to each other so that

[00:28:33] Speaker 00:
You wouldn't start applying it in the context that I was suggesting before.

[00:28:38] Speaker 01:
I think the adversarial nature is a critical feature of this assignment, but what I would point to... That's not a critical feature of the rule about assignments in general.

[00:28:49] Speaker 01:
That's right, Your Honor, and that's where I was going because the Seventh Circuit pointed that out in response to the exact same argument of, oh, we were always fighting on, you know, the minority shareholder was always fighting for the company, so there was no conflict.

[00:29:03] Speaker 01:
The Seventh Circuit said that that stretches it way too far.

[00:29:06] Speaker 01:
And even if that were true, that there were no adversarial relationship, the rule against the assignment of malpractice claims is absolute.

[00:29:14] Speaker 00:
So I don't know that… So that means that you're not limiting this de facto rule to circumstances in which there was an adversarial relationship.

[00:29:22] Speaker 00:
So that becomes, you know, if we at least limited

[00:29:28] Speaker 00:
regarded as limited to those circumstances, at least we have a box into which it's fixed.

[00:29:33] Speaker 00:
Otherwise, it seems to become extremely broad.

[00:29:36] Speaker 00:
Well, I think the facts… Because corporate control is switched all the time.

[00:29:40] Speaker 01:
Your Honor, that's not me saying that.

[00:29:43] Speaker 01:
That is the Seventh Circuit Court of Appeals addressing the same Indiana law that the Nevada Supreme Court has looked to.

[00:29:47] Speaker 00:
All right, but I ask you what we should rule if we're going to rule on this.

[00:29:50] Speaker 01:
I think this is a motion to dismiss.

[00:29:52] Speaker 01:
I think

[00:29:53] Speaker 01:
The court is limited to, there's a lot of extraneous stuff that got put into the record, including the email that got read earlier in the argument.

[00:30:02] Speaker 01:
But I think the court is limited to the allegations in the amended complaint, which are abundantly clear that this settlement agreement was designed to accomplish a de facto assignment in violation of public policy, where the former lawyers, the adversaries of Mr. Labuti and Ponder are carved out from the releases.

[00:30:20] Speaker 01:
There is a waiver of privilege

[00:30:22] Speaker 01:
All of the hallmarks.

[00:30:24] Speaker 03:
Can I just ask, so it seems like the complaint basically incorporates by reference this settlement agreement, but I think you said earlier you've never seen it.

[00:30:31] Speaker 03:
Why don't we have the settlement agreement?

[00:30:33] Speaker 01:
It's never been produced to us.

[00:30:35] Speaker 01:
The case never went to discovery.

[00:30:36] Speaker 01:
But my clients, as well as the other lawyers, weren't in the room when this deal got hashed out.

[00:30:42] Speaker 01:
So to the point of whether there was a collusive settlement or not, I don't believe that matters to find a de facto assignment in violation of public policy, but we don't know.

[00:30:53] Speaker 01:
So we don't have that information.

[00:30:56] Speaker 01:
We've never seen the settlement agreement.

[00:30:57] Speaker 03:
The clients negotiated this by themselves without the lawyers?

[00:31:00] Speaker 03:
I was asking a question earlier.

[00:31:01] Speaker 03:
I thought the lawyers would sort of be in this weird position of having to negotiate for the client and against themselves.

[00:31:06] Speaker 03:
But you're saying the lawyers didn't negotiate.

[00:31:08] Speaker 01:
Separate counsel.

[00:31:09] Speaker 01:
But my clients were out by the time this agreement was reached.

[00:31:14] Speaker 01:
But all we are relying on is the allegations and the amended complaint, which kind of rendered that discovery

[00:31:23] Speaker 01:
unnecessary because, you know, the Ninth Circuit is saying you can plead yourself out of a claim.

[00:31:27] Speaker 01:
And Freshmix has pled every fact you need and every hallmark of a de facto assignment in violation policy.

[00:31:36] Speaker 01:
It is in the 100-page complaint.

[00:31:37] Speaker 01:
We know exactly what the settlement agreement did.

[00:31:41] Speaker 01:
And I don't see any other conclusion that it was transparently orchestrated to accomplish what the law prohibits.

[00:31:48] Speaker 01:
I know I'm out of time, Your Honor.

[00:31:49] Speaker 01:
If the panel has any other questions, I'm happy to answer those.

[00:31:52] Speaker 04:
We do, thank you.

[00:31:54] Speaker 01:
Thank you.

[00:32:03] Speaker 02:
Thank you, Your Honors.

[00:32:06] Speaker 02:
So what I'll note is that my colleague Mr. Irwin had mentioned the Duro case and

[00:32:18] Speaker 02:
Once again, the public policy in the Dorough case, the overarching public policy, is a duty of loyalty.

[00:32:28] Speaker 02:
So that's the public policy we're seeking to address.

[00:32:31] Speaker 02:
Now, the letter that I read from, the email that I read from, it wasn't put into the record by me.

[00:32:35] Speaker 02:
It was put into the record by appellee council.

[00:32:40] Speaker 02:
By appellee council.

[00:32:41] Speaker 02:
Not Mr. Irwin, though.

[00:32:42] Speaker 02:
Another council.

[00:32:45] Speaker 00:
It's a motion to dismiss, so how was it put into the record at all?

[00:32:48] Speaker 00:
Is this a motion to dismiss?

[00:32:51] Speaker 00:
How is it in the record at all?

[00:32:52] Speaker 02:
It was part of the motion practice.

[00:32:54] Speaker 02:
It was attached to various motions as additional exhibits for the court to take into account.

[00:32:59] Speaker 00:
On a motion to dismiss?

[00:33:01] Speaker 02:
On a motion to dismiss, Your Honor, yes.

[00:33:02] Speaker 02:
There were various exhibits added to the motion to dismiss with the idea that, look, if you're going to dismiss it, let us amend as well.

[00:33:09] Speaker 02:
So don't dismiss.

[00:33:11] Speaker 02:
You need us to correct things.

[00:33:13] Speaker 02:
Here's some reasons why we'll amend.

[00:33:15] Speaker 02:
So we have counsel that said the Prolux complaint.

[00:33:18] Speaker 03:
But wait, your side would have been the side amending.

[00:33:20] Speaker 03:
Correct, correct.

[00:33:21] Speaker 03:
So you would usually be the one saying, here's what I would amend with.

[00:33:24] Speaker 03:
You're saying they are the ones who gave that, though?

[00:33:26] Speaker 02:
They put it in response to the motion.

[00:33:29] Speaker 02:
They put it into this record, Your Honors.

[00:33:31] Speaker 02:
The underlying record, it wasn't part of the complaint.

[00:33:34] Speaker 02:
So we didn't add it to this record.

[00:33:37] Speaker 02:
The appellate added it to the record.

[00:33:39] Speaker 02:
So they're allowed to.

[00:33:41] Speaker 02:
They chose to.

[00:33:42] Speaker 02:
I didn't make that decision.

[00:33:43] Speaker 02:
But that letter that I referenced goes in and talks about the systematic decisioning that's happening with counsel to drive Freshman's value to zero for the benefit of GetFresh.

[00:33:57] Speaker 02:
That's planning against the client.

[00:33:58] Speaker 00:
That's an outpractice claim, but it's not responsive to the question of whether there was an assignment here.

[00:34:04] Speaker 02:
Oh, sorry.

[00:34:04] Speaker 02:
Your Honor, I did not hear you.

[00:34:06] Speaker 00:
I said that suggests that you have quite possibly

[00:34:10] Speaker 00:
valid underlying malpractice claim, but what does that have to do with the assignment question?

[00:34:15] Speaker 02:
So, Your Honor, it doesn't have to do with the assignment question, but it has to do with the public policies of duty of loyalty.

[00:34:21] Speaker 02:
You can't claim there's an assignment that caused us to be, that would cause a disloyalty issue or a loyalty issue when you're already disloyal to that client.

[00:34:30] Speaker 02:
You helped a creditor and an owner put that client into an involuntary bankruptcy.

[00:34:36] Speaker 02:
You weren't loyal to Freshmix.

[00:34:38] Speaker 02:
They can't claim we're protecting the professionalism of the law practice when you already breached professionalism.

[00:34:44] Speaker 00:
So there would be a rule, which Duro does not seem to recognize, that when the malpractice claim is based on a conflict of interest or disloyalty, then the assignment rule doesn't apply?

[00:34:55] Speaker 00:
Or what?

[00:34:56] Speaker 02:
Well, there isn't an assignment here.

[00:34:58] Speaker 02:
So that's sort of the problem.

[00:34:59] Speaker 00:
Well, I know.

[00:34:59] Speaker 00:
So that's the question.

[00:35:00] Speaker 00:
But I don't see the pertinence of what you're saying.

[00:35:05] Speaker 00:
I mean, it might not be a bad rule that says when

[00:35:08] Speaker 00:
when there is no loyalty, when the claim is lack of loyalty, the assignment rule doesn't apply.

[00:35:14] Speaker 00:
But you're not arguing for that.

[00:35:15] Speaker 00:
You're arguing that this isn't an assignment.

[00:35:17] Speaker 02:
Correct.

[00:35:18] Speaker 02:
There's no de facto assignment.

[00:35:19] Speaker 02:
And I think Judge Callahan pointed it out.

[00:35:24] Speaker 02:
What percentages do we use?

[00:35:25] Speaker 02:
When do we do that?

[00:35:27] Speaker 02:
There's some times where let the fact finder hear the case, try the case.

[00:35:32] Speaker 02:
When there wasn't an assignment, acknowledge corporate formalities, let them stand.

[00:35:37] Speaker 02:
and let the trier of fact decide ultimately what happened here.

[00:35:41] Speaker 02:
Rather than putting in this rule in Oceania, it can get expanded dramatically.

[00:35:45] Speaker 04:
And I want to ask you to wrap up.

[00:35:47] Speaker 04:
Sorry.

[00:35:48] Speaker 04:
Now you've gone into overtime.

[00:35:50] Speaker 02:
I'm sorry.

[00:35:51] Speaker 02:
So one of the critical evaluations, look at all of the Nevada law and you'll find it's a transfer to a creditor.

[00:36:00] Speaker 02:
That has always happened.

[00:36:01] Speaker 02:
That's been the issue.

[00:36:02] Speaker 02:
Not that a majority has been found to do something wrong.

[00:36:06] Speaker 02:
knowingly wrong with the aid of attorneys, it's always a transfer to a creditor.

[00:36:10] Speaker 02:
There's no transfer to a creditor.

[00:36:11] Speaker 02:
There's no de facto transfer to a creditor.

[00:36:14] Speaker 02:
That didn't happen here.

[00:36:15] Speaker 02:
In fact, GetFresh was the creditor.

[00:36:18] Speaker 02:
Lagudy and Ponder were owners left in charge because of the other creditor owners' malfeasance, but the attorneys owed a duty of loyalty to FreshMix.

[00:36:30] Speaker 02:
That's the duty of loyalty.

[00:36:32] Speaker 04:
Thank you, Your Honors.

[00:36:36] Speaker 04:
Submitted in this court is in recess till tomorrow at 9.