Packlane, Inc. v. Best & Flanagan, LLP

Background

Packlane initially filed the case in San Francisco Superior Court in May 2023. The defendants removed it to federal court based on diversity jurisdiction. Packlane alleges that it retained Best & Flanagan in March 2020 for advice concerning a possible corporate transaction with Digital Room. Digital Room expressed interest in buying Packlane for $30 million in cash, and Packlane alleges that, based on the firm’s advice, it sold its assets to Digital Room in May 2022. Packlane claims the transaction should have been structured differently and alleges that the attorneys were not licensed to practice law in California. Its claims are for breach of contract, professional negligence—legal malpractice—and breach of fiduciary duty.

The defendants filed an amended answer containing fourteen affirmative defenses. An affirmative defense is a defendant’s stated reason why the plaintiff should not prevail even if the complaint’s allegations are assumed for purposes of the defense. Packlane moved to strike all fourteen defenses, arguing that they lacked sufficient factual support.

Motion to Change Venue

Best & Flanagan and Grimsrud moved to transfer the case to the District of Minnesota. The parties did not appear to dispute that the case could have been brought there. The dispute concerned whether Minnesota would be more convenient for the parties and witnesses and would better serve the interests of justice under 28 U.S.C. § 1404(a).

The court found that Packlane’s choice of the Northern District of California weighed against transfer. Packlane is headquartered in San Francisco, Digital Room is headquartered in Sherman Oaks, California, and the legal advice and asset purchase at the center of the case had a significant connection to California.

The court treated the applicable-law factor as neutral because the parties disputed whether California or Minnesota law applied and neither performed the necessary choice-of-law analysis. The court also treated access to documentary evidence as neutral because modern technology makes documents easier to transfer.

The court rejected the defendants’ argument that witness convenience strongly favored Minnesota. Although the defendants identified ten anticipated witnesses who were Best & Flanagan attorneys, they did not identify those attorneys by name, state where they lived, describe their expected testimony, or establish whether they still worked for the firm. The court also noted that Packlane identified Digital Room personnel as important witnesses, including a person who negotiated and signed the asset purchase agreement and worked in the Los Angeles area. The court found that the local-interest factor was neutral.

The court concluded that Best & Flanagan had not shown that transfer would better serve convenience or the interests of justice. It therefore DENIED the motion to change venue.

Motion to Strike

Federal Rule of Civil Procedure 12(f) permits a court to strike an insufficient, redundant, immaterial, impertinent, or scandalous matter from a pleading. The court explained that a defense is sufficiently pleaded when it gives the opposing party fair notice of the defense’s nature. The court also applied its prior view that an affirmative defense must include enough supporting facts to make it plausible, but emphasized that the standard is not demanding and does not require extensive factual detail.

The court found that the defendants had generally alleged enough facts at this stage. The answer stated, among other things, that Packlane had not pursued all means of reducing tax liability; had provided inaccurate or incomplete tax information; had failed to consult an outside accounting firm as represented; received approximately $30 million from the sale; and could not realistically have obtained more through a different transaction structure. The answer also asserted that the defendants were not legally required to be licensed to practice law in California for the services they performed. The court DENIED the motion to the extent it was based on an alleged lack of factual support.

Packlane separately argued that the “Active Fault,” “Complaint barred by Sole Negligence or Willful Misconduct,” and “Speculative Damages” defenses were not affirmative defenses but instead challenged Packlane’s ability to prove its claims. The defendants did not respond to that argument. Packlane also challenged the defense reserving the right to assert additional affirmative defenses. The court agreed that this reservation was not itself an affirmative defense.

The court therefore GRANTED IN PART and DENIED IN PART the motion to strike. It struck the Fifth Affirmative Defense (“Active Fault”), Sixth Affirmative Defense (“Complaint barred by Sole Negligence or Willful Misconduct”), Twelfth Affirmative Defense (“Speculative Damages”), and Fourteenth Affirmative Defense (“Unstated Additional Defenses”). The court struck those defenses without leave to amend. It otherwise DENIED the motion in its entirety. The court noted that the defendants were not precluded from asserting additional affirmative defenses later.

Disposition

Judge Haywood S. Gilliam, Jr. DENIED the motion to change venue and GRANTED IN PART and DENIED IN PART the motion to strike. The court also continued the telephonic case-management conference and directed the parties to meet and confer and submit a revised joint case-management statement.