## Facts

- General Nutrition Corporation (GNC) hired the law firm Gardere Wynne Sewell, LLP (Gardere) to advise GNC about the legal consequences of terminating contracts with Franklin Publications, Inc. (Franklin) relating to the production, purchase, and sale of two magazines.
- GNC alleged Gardere advised that the contracts were predominantly a sale of goods governed by the Uniform Commercial Code (UCC).
- GNC alleged Gardere advised that, under the UCC, Franklin’s recoverable damages would be limited to roughly $1–$3 million and that Franklin could not recover claimed lost profits (about $34.5 million) because such damages would be consequential.
- Relying on that advice, GNC terminated the Franklin contracts.
- Franklin sued GNC. Gardere continued to advance the UCC theory in defending GNC in that litigation.
- In July 2007, the court in the Franklin suit ruled on summary judgment that the contracts were predominantly for services and the UCC did not apply.
- After that ruling, GNC terminated Gardere’s representation and paid Franklin a substantial sum to settle the lawsuit.
- In 2008, GNC sued Gardere for legal malpractice (negligence), breach of contract, and breach of fiduciary duty, alleging that Gardere’s advice was faulty and substandard and that GNC had no reason to know it was faulty until the July 2007 summary-judgment ruling.
- Gardere moved to dismiss under Rule 12(b)(6), arguing, among other things, that the malpractice claim was untimely or barred by the Franklin settlement, that the contract claim merely duplicated the negligence claim, and that the allegations did not support a fiduciary-duty claim. Gardere also invoked the attorney “judgment rule,” contending it could not be liable for an incorrect legal prediction.

## Issues

1. Whether GNC’s complaint plausibly stated a claim for legal malpractice, or whether Gardere was protected at the pleading stage by the attorney “judgment rule.”
2. Whether the negligence (malpractice) claim was time-barred on the face of the complaint, or whether GNC plausibly alleged delayed discovery of the injury and its cause.
3. Whether GNC’s settlement with Franklin defeated causation or damages as a matter of law at the Rule 12(b)(6) stage.
4. Whether GNC’s breach-of-contract claim had to be dismissed as duplicative of the malpractice claim.
5. Whether the alleged facts were sufficient to plead breach of fiduciary duty arising from the attorney-client relationship.

## Decision

- The court denied Gardere’s Rule 12(b)(6) motion to dismiss.
- Accepting the pleaded facts as true, the court held GNC alleged more than a hindsight disagreement with an unfavorable court ruling; it alleged Gardere failed to perform adequate legal research and analysis before advising GNC that the UCC applied and that damages exposure was limited.
- The court declined to dismiss the negligence claim as untimely because the complaint plausibly alleged GNC did not know, and had no reason to know, of the alleged deficiency until the July 2007 summary-judgment decision; on the pleadings alone, the limitations defense was not established.
- The court rejected the argument that GNC’s settlement with Franklin barred the claims as a matter of law at the pleading stage; the effect of the settlement on causation and damages required factual development.
- The court permitted the breach-of-contract and breach-of-fiduciary-duty claims to proceed at this stage based on the same core allegations of deficient legal work and resulting harm.

## Legal Principles

- On a Rule 12(b)(6) motion, the court accepts well-pleaded factual allegations as true and determines whether they state a plausible claim for relief.
- Under Pennsylvania malpractice principles, attorneys are not guarantors of outcomes, and a mere error in professional judgment is generally not actionable when made after appropriate research and analysis; however, allegations that counsel failed to exercise the ordinary knowledge and skill of the profession—such as by failing to perform adequate research—can support malpractice.
- A statute-of-limitations defense may be resolved on a motion to dismiss only when untimeliness is apparent from the face of the complaint; where the complaint plausibly alleges delayed discovery, dismissal is not appropriate.
- Settlement of the underlying dispute does not automatically defeat a later malpractice action at the pleading stage; questions about causation, reasonableness of the settlement, and the measure of damages commonly depend on facts outside the complaint.
- A plaintiff may plead alternative theories (negligence, breach of contract, breach of fiduciary duty) based on the same events at the pleading stage when the allegations could support liability under more than one duty owed by counsel to client.

## Conclusion

The court denied dismissal because GNC plausibly alleged that Gardere’s UCC-based advice and damages assessment were given without adequate research and analysis, that GNC relied on that advice in terminating the Franklin contracts, and that GNC did not discover the alleged deficiency until the adverse summary-judgment ruling; limitations, settlement, and duplication arguments required a fuller record rather than resolution on the pleadings.


General Nutrition Corporation v. Gardere Wynne Sewell, LLP, 2008 WL 3982914 (2008)