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Watts Water v. Sidley (Sidley Motion for Summary Judgment)

Watts Water v. Sidley (Sidley Motion for Summary Judgment)

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IN THE SUPERIOR COURT FOR THE DISTRICT OF COLUMBIA CIVIL DIVISION

WATTS WATER TECHNOLOGIES, INC. PLAINTIFF,
V.

2012 CA 004847 M Hon. Gregory E. Jackson Next Court Date: September 7, 2012, 9:30 a.m.

SIDLEY AUSTIN LLP, DEFENDANT.

Event: Initial Scheduling Conference

MOTION FOR SUMMARY JUDGMENT Pursuant to Rule 56 of the Rules of Civil Procedure, Defendant Sidley Austin LLP respectfully moves for summary judgment as to all counts of the Complaint on the grounds set forth in the accompanying Memorandum of Points and Authorities. RULE 12-I(A) STATEMENT Defendant’s counsel unsuccessfully sought Plaintiff’s consent to the relief requested. ORAL HEARING REQUESTED Dated: July 27, 2012 Respectfully submitted, WILLIAMS & CONNOLLY LLP By: /s/ John K. Villa John K. Villa (D.C. Bar No. 220392) Charles Davant IV (D.C. Bar No. 484305) Marcus P. Smith (D.C. Bar No. 996721) 725 Twelfth Street, N.W. Washington, DC 20005 Telephone: (202) 434-5000 Facsimile: (202) 434-5029 E-Mail: jvilla@wc.com cdavant@wc.com msmith@wc.com Counsel for Sidley Austin LLP

IN THE SUPERIOR COURT FOR THE DISTRICT OF COLUMBIA CIVIL DIVISION

WATTS WATER TECHNOLOGIES, INC. PLAINTIFF,
V.

2012 CA 004847 M Hon. Gregory E. Jackson Next Court Date: September 7, 2012, 9:30 a.m.

SIDLEY AUSTIN LLP, DEFENDANT.

Event: Initial Scheduling Conference

DEFENDANT SIDLEY AUSTIN LLP’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT

WILLIAMS & CONNOLLY LLP John K. Villa (D.C. Bar No. 220392) Charles Davant IV (D.C. Bar No. 484305) Marcus P. Smith (D.C. Bar No. 996721) 725 12th Street, N.W. Washington, DC 20005 (202) 434-5000 Counsel for Sidley Austin LLP

TABLE OF CONTENTS TABLE OF AUTHORITIES .......................................................................................................... ii SUMMARY OF ARGUMENT .......................................................................................................1  RELEVANT STATUTORY BACKGROUND: THE FCPA.........................................................4  UNDISPUTED FACTS ...................................................................................................................5  A.  B.  C.  D.  Sidley Is Engaged for Limited Due Diligence at Changsha Valve. .........................5  Deloitte Reported the Purported “Kickback Policy” to Watts in 2004. ...................7  Watts Creates and Operates a New Chinese Subsidiary. .........................................7  Watts and Its Newly Formed Subsidiary Begin Violating the FCPA More Than Two Years After Sidley’s Due Diligence at Changsha Valve. .......................8 

WATTS’ COMPLAINT ..................................................................................................................9  SUMMARY JUDGMENT STANDARD......................................................................................11  ARGUMENT .................................................................................................................................11  I.  WATTS CANNOT SHIFT TO INNOCENT OUTSIDE COUNSEL THE CONSEQUENCES OF WATTS’ WRONGFUL CONDUCT. .........................................11  A.  In Pari Delicto Bars Watts’ Claims. .......................................................................12  1.  2.  B.  C.  D.  II.  III.  In Pari Delicto. ...........................................................................................12  The Complaint Establishes Watts’ Vastly Greater Culpability. ................13 

Watts’ Wrongdoing Proximately Caused Its Own Alleged Losses. ......................14  Watts’ Claims Violate Judicially Recognized Public Policy. ................................15  Contributory Negligence Bars the Negligence Claims (Counts 1 and 3). .............17 

FCPA WORK WAS BEYOND THE SCOPE OF SIDLEY’S ENGAGEMENT. ............18  THE STATUTE OF LIMITATIONS BARS ALL THREE COUNTS. ............................21  A.  B.  The Breach of Contract Claim Is Time-Barred......................................................21  The Negligence Claims Are Time-Barred. ............................................................21 

IV. 

SUMMARY JUDGMENT IS WARRANTED ON WATTS’ DUPLICATIVE COUNTS 2 AND 3. ...........................................................................................................23 

CONCLUSION ..............................................................................................................................24 

i

TABLE OF AUTHORITIES FEDERAL CASES Alberts v. Tuft (In re Greater Se. Cmty. Hosp. Corp.), 353 B.R. 324 (Bankr. D.D.C. 2006)........12 Allison v. Howard Univ., 209 F. Supp. 2d 55 (D.D.C. 2002) ........................................................21 Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299 (1985) ..........................................12 Bradley v. Nat’l Ass’n of Sec. Dealers Dispute Resolution, Inc., 433 F.3d 846 (D.C. Cir. 2005) ........................................................................................................................................22 Dooley v. United Techs. Corp., 803 F. Supp. 428 (D.D.C. 1992) ...................................................5 Hartz v. Farrugia, No. 06-3164, 2009 WL 901767 (E.D. La., Mar. 31, 2009), cert denied, 131 S. Ct. 104 (2010) ...............................................................................................................19 Havens v. Patton Boggs LLP, No. 05-01454, 2006 WL 1773473 (D.D.C. June 26, 2006), aff’d, 235 F. App’x 750 (D.C. Cir. 2007) ................................................................................21 Iacangelo v. Georgetown Univ., 760 F. Supp. 2d 63 (D.D.C. 2011).............................................24 Meador v. Albanese Law Office, No. 5:08-cv-562, 2010 WL 3807163 (N.D.N.Y. Sept. 23, 2010) ..................................................................................................................................24 N. Am. Catholic Educ. Programming Found., Inc. v. Womble Carlye Sandridge & Rice, PLLC, 800 F. Supp. 2d 239 (D.D.C. 2011) .............................................................................24 Pinter v. Dahl, 486 U.S. 622 (1988) ..............................................................................................12 USACM Liquidating Trust v. Deloitte & Touche LLP, 764 F. Supp. 2d 1210 (D. Nev. 2011) ........................................................................................................................................13 Wyo. Outdoor Council v. Dombeck, 148 F. Supp. 2d 1 (D.D.C. 2001) .........................................11 STATE CASES AmBase Corp. v. Davis Polk & Wardwell, 866 N.E.2d 1033 (N.Y. 2007) .............................19, 20 Biomet Inc. v. Finnegan Henderson LLP, 967 A.2d 662 (D.C. 2009) ....................................11, 23 Breezevale Ltd. v. Dickinson, 759 A.2d 627 (D.C. 2000), vacated & reh’g granted by 769 A.2d 133, reaffirmed by 783 A.2d 573 (D.C. 2001) (en banc) ................................................17 Bussineau v. President & Directors of Georgetown Coll., 518 A.2d 423 (D.C. 1986) .................21

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Choquette v. Isacoff, 836 N.E.2d 329 (Mass. App. Ct. 2005) .......................................................12 Dalo v. Kivitz, 596 A.2d 35 (D.C. 1991) .......................................................................................14 Evans v. Cameron, 360 N.W.2d 25 (Wis. 1985) ...........................................................................13 Ferguson v. Lieff, Cabraser, Heimann & Bernstein, LLP, 69 P.3d 965 (Cal. 2003).....................16 Gilbert v. Miodovnik, 990 A.2d 983 (D.C. 2010) ..........................................................................11 Hicks v. Nunnery, 643 N.W. 2d 809 (Wis. Ct. App. 2002) ...........................................................16 Karma Constr. Co. v. King, 296 A.2d 604 (D.C. 1972) (per curiam) ...........................................18 Kirschner v. KPMG LLP, 938 N.E.2d 941 (N.Y. 2010) ..........................................................12, 14 Maillard v. Dowdell, 528 So. 2d 512 (Fla. Dist. Ct. App. 1988)...................................................19 Massengale v. Pitts, 737 A.2d 1029 (D.C. 1999) ..........................................................................17 McKethean v. Wash. Metro. Area Transit Auth., 588 A.2d 708 (D.C. 1991) ................................15 Paul v. Smith, Gambrell & Russell, 599 S.E. 2d 206 (Ga. Ct. App. 2004) ...................................16 R.D.H. Commc’ns, Ltd. v. Winston, 700 A.2d 766 (D.C. 1997) ....................................................22 Spannaus v. Larkin, Hoffman, Daly & Lindgren, Ltd., 368 N.W.2d 395 (Minn. Ct. App. 1985) ........................................................................................................................................19 Tri-G, Inc. v. Burke, Bosselman & Weaver, 856 N.E.2d 389 (Ill. 2006) .......................................16 Wagner v. Sellinger, 847 A.2d 1151 (D.C. 2004)..........................................................................21 Watson v. Calvert Building & Loan Ass’n, 45 A. 879 (Md. 1900) ................................................19 Whiteheart v. Waller, 681 S.E.2d 419 (N.C. Ct. App. 2009), review denied, 693 S.E.2d 353 (N.C. 2010) .......................................................................................................................13 Wingfield v. People’s Drug Store, 379 A.2d 685 (D.C. 1977) ......................................................17 OTHER AUTHORITIES 4 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice (2012 ed.) .................................11, 23 D.C. Code § 12-301 .......................................................................................................................21 Foreign Corrupt Practices Act of 1977 (“FCPA”), 15 U.S.C. §§ 78dd-l et seq. ................... passim Restatement (Third) of The Law Governing Lawyers (2000). ..........................................16, 18, 19 iii

Superior Court R. Civ. P. 56(c)......................................................................................................11 Williston on Contracts (4th ed. 1990) ............................................................................................21

iv

SUMMARY OF ARGUMENT In this case, an admitted corporate wrongdoer that was required to disgorge illegal profits and pay penalties to the federal government for violating a federal anti-bribery law seeks to recoup the fruits of its wrongdoing and penalties from its former counsel, based on allegations that counsel were negligent. Plaintiff Watts Water Technologies, Inc. (“Watts”) is an American company that has admitted violating the Foreign Corrupt Practices Act (“FCPA”) in two respects: (1) by bribing Chinese government officials at its China subsidiary and (2) by maintaining inaccurate books and records. This illegal conduct resulted in the Securities and Exchange Commission (SEC) ordering Watts to disgorge $2.7 million in illegal profits (plus interest) and pay a $200,000 penalty. Watts now sues its former counsel Sidley Austin LLP (“Sidley”), alleging that Sidley failed to prevent Watts from breaking the law. 1 Watts makes this claim even though Watts never engaged Sidley, and Sidley never agreed, to provide advice on the FCPA, a fact the documentary record confirms. Watts cannot, as a matter of law, shift the consequences of its wrongdoing to Sidley. Allowing Watts’ claims to proceed would reward a wrongdoer and eliminate the deterrent and punitive purposes that the SEC penalty was meant to serve. It would be contrary to wellestablished legal rules that require courts to deny recovery to a wrongdoer in these circumstances. The result Watts seeks would be particularly egregious because Watts violated the FCPA for several years and reaped a large financial benefit, while Sidley is merely alleged to have been negligent—an allegation Sidley denies.

For ease of reference, for this Motion only, the term “Watts” will refer both to Plaintiff Watts Water Technologies, Inc. and its affiliate Watts Regulator Co. “Sidley” will refer to Sidley Austin Brown & Wood LLP in connection with events before January 2006 and will refer to Sidley Austin LLP in connection with events after that date. 1

1

A shorthand version of the facts set out in the Complaint and its attached SEC Order demonstrates why Watts’ case against Sidley is, as a matter of law, foreclosed. In November 2005, Watts formed a new, wholly owned subsidiary in China. In April 2006, Watts’ new subsidiary bought certain assets from the Chinese company Changsha Valve Works (“Changsha Valve”) and hired certain Changsha Valve employees. In December 2006, Watts’ new subsidiary adopted an “illegal policy” of bribing Chinese government officials in violation of the FCPA, and inaccurately recording those bribes on Watts’ books in violation of the FCPA’s accounting requirements. As the SEC found (based on Watts’ own submissions), Watts China’s Vice President of Sales “approved many of the payments . . . and knew or should have known that the payments were improperly recorded on Watts’ books.” The illegal “payments generated profits for Watts of more than $2.7 million,” plus interest, from 2006 to 2009. Under the FCPA, Watts had an independent legal duty to refrain from bribing foreign government officials. See 15 U.S.C. § 78dd-1. Watts also had an independent legal duty to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance” that its books and records were accurate. Id. § 78m(b)(2)(A)–(B). Watts indisputably violated its legal duties. The SEC has found that Watts could and should have accomplished compliance by conducting basic FCPA training for its employees in China. At no point did Watts request that Sidley review Watts’ or its subsidiary’s compliance with the FCPA or other United States laws, and Watts certainly never asked Sidley, a law firm, to assess Watts’ compliance with accounting rules. Watts’ negligence theory against Sidley stems from the fact that Watts had hired Sidley back in 2004 to conduct specified due diligence tasks—none of which included FCPA compliance—at the old Changsha Valve, the company that sold its assets to Watts in 2006.

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Watts alleges that Sidley negligently failed to detect and report that Changsha Valve had bribed government officials. According to Watts, if Sidley had only reported Changsha Valve’s bribery to Watts in 2004 or 2005, then Watts would not have engaged in bribery at Watts’ own subsidiary from 2006 to 2009, and would have maintained adequate books and records. The argument is preposterous. For one, Deloitte & Touche Corporate Finance Ltd., which conducted financial due diligence for Watts at Changsha Valve, specifically identified and reported Changsha Valve’s so-called “kickback policy” to Watts in writing on November 19, 2004. Watts’ then-Assistant General Counsel wrote in a memorandum, long before the Changsha Valve deal was concluded, “I have reviewed the . . . draft Financial Due Diligence report . . . by Deloitte.” Yet Watts went ahead with the conduct described in the Complaint despite Deloitte’s written report. Under these circumstances, it is frankly amazing that Watts comes to this Court seeking a recovery from Sidley. As we show in Part I, courts at the summary judgment stage have rejected claims like Watts’ as barred by a number of legal principles. These include (1) in pari delicto; (2) a lack of proximate causation; (3) a public policy against permitting wrongdoers to keep ill-gotten gains by shifting blame; and (4) contributory negligence. A separate ground for summary judgment, as we show in Part II, is that a lawyer is not liable for failing to perform a duty that he or she did not agree to perform. A clear documentary record shows exactly what Sidley was engaged to do, and FCPA work was not within the scope of Sidley’s engagement. As part of the initial correspondence discussing the requested due diligence, Sidley sent Watts a detailed “due diligence” checklist. The checklist did not provide for FCPA review. The Sidley partner explained that Sidley “would conduct our legal DD [due diligence] based on the assumption of asset/business rather than equity acquisition and would

3

focus our attention on the following two major areas”: (1) whether Changsha Valve’s assets were cleanly owned and (2) whether the assets/business proposed for sale could lawfully be sold to Watts. Watts responded: “The checklist looks fine.” If Watts had wished to engage Sidley to evaluate other issues, including FCPA issues, then it should have done so. In Part III, we show that the three-year statutes of limitations bar Watts’ claims, which concern alleged breaches in 2004 and 2005, and which Watts as a matter of law has known about since at least December 2006, when Watts began violating the FCPA. Finally, in Part IV, we show that Count 2 (breach of contract) and Count 3 (negligent misrepresentation) must be dismissed under controlling precedent because they are duplicative of Count 1 (professional negligence). This lawsuit never should have been brought. Watts’ legal theory offends notions of fair play, justice, and public policy. It is foreclosed by dispositive legal bars appearing on the face of the Complaint. The Court should enter summary judgment in favor of Sidley. 2 RELEVANT STATUTORY BACKGROUND: THE FCPA This case involves a federal statute, the Foreign Corrupt Practices Act of 1977 (“FCPA”). The FCPA contains two sets of provisions. The anti-bribery provisions, enforced by the Department of Justice through civil and criminal penalties, make it unlawful for publicly traded United States corporations to bribe foreign government officials to obtain or retain business. See 15 U.S.C. § 78dd-1–3 (2006). The FCPA also contains accounting provisions that require publicly traded United States corporations to make and keep books and records that accurately reflect the company’s transactions, and to devise and maintain an adequate system of internal
2

To the extent this brief makes reference to Sidley’s alleged negligence, it is accepting the allegations of the complaint at face value only for purposes of the legal arguments set forth herein. In fact, Sidley’s legal work exceeded professional standards and was in no way negligent. 4

accounting controls. See id. § 78m(b)(2)–(3). The books and records and internal control provisions are enforced by the SEC. Payment of a bribe to a foreign government official violates both the bribery provisions and the books-and-records provisions, unless, as to the latter, the bribe is properly reflected as such in the company’s records. See id. The FCPA does not apply to Chinese-owned companies doing business in China. See id. § 78dd-1; Dooley v. United Techs. Corp., 803 F. Supp. 428, 438–39 (D.D.C. 1992). FACTUAL BACKGROUND3 A. Sidley Is Engaged for Limited Due Diligence at Changsha Valve.

Plaintiff Watts Water Technologies, Inc. (“Watts”) is a publicly traded company that designs, manufactures, and sells water valves in North America, Europe, and Asia. See Compl. ¶¶ 4, 25. Watts has approximately 70 facilities worldwide, and its annual sales exceed $1 billion. See id. ¶ 25. By 2004, Watts had “substantial operations” in China, including ownership of several corporate subsidiaries. Id. ¶ 26. Watts sought to expand its China presence through a deal with Changsha Valve, a Chinese company. See id. ¶¶ 28, 37. On November 12, 2004, a Watts executive e-mailed a Sidley partner in Shanghai: “We need your participation in a legal due diligence on a target company . . . . The scope of the review will be your firm’s standard legal due diligence review.” Ex. 1 (11/12/04 Ho E-Mail). A few hours later, the Sidley partner (Zhengyu Tang, a Chinese national) responded to Watts by email: “[W]e have prepared the attached legal DD [due diligence] request/checklist . . . .” Ex. 2 (DD Checklist). The due diligence checklist that Sidley provided to Watts addressed various topics: “a detailed list of all assets of the Company,” “documentary proof of title to major assets,” “a specific description of the land and buildings currently used by the Company,” The facts are derived from the Complaint, its attachments, and the Statement of Undisputed Facts, which attaches documents the authenticity of which cannot reasonably be disputed. 5
3

“present or potential environmental pollution,” “mortgages and other encumbrances,” and numerous other topics. Ex. 3 (Certified Translation). The checklist made no mention of any due diligence to be conducted in connection with the FCPA or any other laws of the United States. See id. The Watts executive responded to Sidley on November 15, 2004: “The checklist looks fine.” Ex. 4 (11/15/04 E-Mail Exchange) at 2. The Sidley due diligence checklist documented that Watts was “planning to purchase the core assets and businesses of Changsha Valve” and to place them in a Watts subsidiary. Ex. 3 (Certified Translation) (emphasis added). Because Watts would not be buying Changsha Valve as an entity, Watts would not acquire legal liability for Changsha Valve’s past conduct. See Ex. 4 (11/15/04 E-Mail Exchange) at 1. Watts would be liable only for how it conducted its subsidiary’s operations going forward. See id. The Sidley Shanghai partner explained to Watts on November 15, 2004 that the contemplated transaction structure was relevant to the scope of Sidley’s planned due diligence: [W]e would conduct our legal DD [due diligence] based on the assumption of asset/business rather than equity acquisition and would focus our attention on the following two major issues (in addition to your specific concerns): 1. Whether the assets/business proposed for sale by Changsha Valve are lawfully . . . , exclusively . . . and cleanly . . . owned . . . ; and 2. Whether the assets/business proposed for sale by Changsha Valve can be lawfully sold to Watts by Changsha Value without unusual . . . difficulties. Id. (emphasis added). Watts never requested that Sidley conduct due diligence directed at Changsha Valve’s compliance with the FCPA, any other anti-bribery law, or any other law of the United States. See Ex. 4 (11/15/04 E-Mail Exchange) at 1. Sidley personnel conducted due diligence at Changsha Valve. See Compl. ¶ 40. Sidley issued a preliminary due diligence report on November 24, 2004, and an updated due diligence 6

report on July 20, 2005. See id. ¶¶ 42–43. Sidley did not conduct due diligence directed at FCPA issues. See id. ¶ 47. B. Deloitte Reported the Purported “Kickback Policy” to Watts in 2004.

Sidley was not the only firm Watts hired in 2004 to conduct due diligence at Changsha Valve. See Ex. 5 (Deloitte Rpt.). Watts also hired Deloitte & Touche Corporate Finance Ltd. (“Deloitte”) to conduct financial due diligence. See id. Deloitte specifically reported Changsha Valve’s so-called “kickback policy” to Watts in writing on November 19, 2004 as part of Deloitte’s “[s]elling expenses analysis.” Id. at 14–15. Deloitte wrote: “Consulting fee was paid to government or design institutions for projects and/or bidding information, and rebate to customer was usually provided at a range of 3% of revenue.” Id. (emphasis added). (The Deloitte personnel in China apparently translated the Chinese for “rebate” into English as “rebate.” Id. For purposes of this litigation, however, Watts in the Complaint chooses to translate the Chinese for “rebate” into English as “kickback.” Compl. Ex. C.) Watts’ then-Assistant General Counsel (and now General Counsel) read Deloitte’s report before Watts agreed to proceed with the Changsha Valve deal. See Ex. 6 (6/13/05 Watts Memo). He wrote on June 13, 2005: “I have reviewed the . . . draft Financial Due Diligence report dated November 19, 2004 prepared by Deloitte & Touche . . . regarding Changsha Valve . . . and have the following follow-up questions and requests for information.” Id. Although Watts’ Assistant General Counsel was a United States-based lawyer for a publicly traded company with approximately 70 facilities worldwide, he apparently sought no further information concerning what Watts now characterizes as Changsha Valve’s “kickback policy.” See id. C. Watts Creates and Operates a New Chinese Subsidiary.

In November 2005, Watts formed Watts Valve (Changsha) Co., Ltd. (“CWV”) as a wholly owned subsidiary. See Compl. Ex. D (SEC Order) ¶ 1. In April 2006, Watts’ newly 7

formed CWV subsidiary acquired Changsha Valve’s assets and businesses. See Compl. ¶ 57; Ex. 7 (10/26/05 Acq. Agmt.). Watts’ new CWV subsidiary thereafter hired former employees of Changsha Valve (see Ex. 8 (10/26/05 Empl. Arr. Agmt.)), took over certain Changsha Valve contracts (see Ex. 9 (4/24/06 Contract Assnmt. Agmt.)), and began selling valves in China (see Compl. ¶ 60). Watts China Vice President of Sales Leesen Chang became interim general manager of the new subsidiary. See Compl. Ex. D (SEC Order) ¶ 3. Watts never retained Sidley to provide advice on Watts’ or CWV’s compliance with the FCPA, to investigate possible FCPA violations at Watts or CWV, or to offer an opinion on its financial reporting or internal controls. See Stmt. of Undisp. Fact ¶¶ 12–13. D. Watts and Its Newly Formed Subsidiary Begin Violating the FCPA More Than Two Years After Sidley’s Due Diligence at Changsha Valve.

Eight months after the April 2006 transaction with Changsha Valve, Watts’ newly formed CWV subsidiary began committing FCPA violations by making illegal “payments . . . to Chinese government officials.” Compl. ¶¶ 14, 19–20, 72–74. An SEC Cease-and-Desist Order, to which Watts agreed, explains that “[t]he purpose and effect of those payments was to influence the design institutes to recommend CWV valve products . . . and to create design specifications that favored CWV valve products.” Compl. Ex. D (SEC Order) ¶ 1.4 “CWV’s improper payments generated profits for Watts of more than $2.7 million.” Id. Watts China Vice President of Sales, Leesen Chang, the interim general manager of CWV, “approved many of the payments . . . and knew or should have known that the payments were improperly recorded on Watts’ books as commissions.” Id. ¶ 3. Chang also “resist[ed] . . . efforts to have

The factual findings in the SEC Order attached to the Complaint as Exhibit D were “made pursuant to [Watts’] Offers” of Settlement. Compl. Ex. D (SEC Order) at 2 n.1. Watts “consent[ed] to the entry” of the SEC Order. Id. at 1. For purposes of this Motion only, Sidley credits Watts’ allegations that Watts and its CWV subsidiary violated the FCPA. 8

4

[CWV’s December 2006] Sales Policy translated and submitted to Watts’ management in the U.S.,” which, according to the SEC Order, “was a cause of Watts’ internal control [FCPA] violations.” Id. ¶ 12. Watts “failed to conduct adequate FCPA training for its employees in China until July 2009.” Id. ¶ 9. Watts “failed to devise and maintain a system of internal accounting controls sufficient to prevent and detect the payments.” Id. ¶ 2. In this lawsuit, Watts claims that CWV’s illegal payments were made pursuant to an “illegal policy” that previously had been in place at Changsha Valve. 5 Compl. ¶ 67. Watts reported to the SEC that CWV employees chose to “adopt” that old Changsha Valve policy “in December 2006,” more than two years after Sidley was hired to conduct due diligence at Changsha Valve, more than two years after Deloitte reported the policy to Watts’ law department in Deloitte’s financial due diligence report, and more than a year after CWV was created. See Compl. Ex. D (SEC Order) ¶ 11 (illegal policy was “adopted by CWV in December 2006”). Watts reported its violations to the SEC and DOJ on August 6, 2009, “to obtain the benefits of self-disclosure.” Compl. ¶¶ 73–74. Under the resulting SEC Order, Watts was to “pay to the United States Treasury disgorgement of $2,755,815” (the amount of Watts’ unlawful profits from “CWV’s improper payments”), prejudgment interest on those ill-gotten gains of $820,791, and a civil money penalty of $200,000”: a total of $3,776,606. Compl. Ex. D (SEC Order) ¶ 2, at 7. WATTS’ COMPLAINT Watts on June 6, 2012 filed this lawsuit against Sidley. Watts alleges that Sidley’s file from Changsha Valve due diligence contained a “red flag” in the form of some language at the bottom of a one-page, Chinese-language document—language Watts now calls a “kickback Again, Changsha Valve, as a Chinese company doing business in China, was not subject to the FCPA or other United States laws. 9
5

policy.”6 Compl. ¶¶ 13, 15. Watts goes on to allege that the Chinese lawyers in Sidley’s Shanghai office should have provided the document to Watts, on the theory that the document suggests the possibility that Changsha Valve might have violated the FCPA—a foreign law that did not apply to that Chinese company in any event. See id. ¶¶ 14–15. Watts asserts a claim for professional negligence (Count 1). Based on the same facts as its negligence claim, Watts also asserts claims for breach of contract (Count 2) and negligent misrepresentation (Count 3). As damages, Watts demands that Sidley pay it:  $2,755,815, to “recover” the illegal profits generated by “CWV’s improper payments” that Watts was required to disgorge to the U.S. Treasury (Compl. ¶ 124, Ex. D (SEC Order) ¶ 2); $820,791 of interest on those ill-gotten gains that Watts was required to disgorge to the U.S. Treasury (see Compl. ¶ 124, Ex. D (SEC Order) ¶ 2); $200,000 for the “civil money penalty” Watts paid to the U.S. Treasury (Compl. ¶ 124, Ex. D (SEC Order) ¶ 2); Watts’ legal fees and costs in connection with its FCPA violations (see Compl. ¶ 21); and “the [unspecified] losses that Watts [allegedly] suffered when it was forced to sell [CWV] at a substantial loss.” (id.). 7

   

For purposes of this litigation, Watts translates the Chinese word for “rebate” in that document as “kickback,” and overlooks the fact that the “kickback policy” says nothing whatsoever about payments to government officials. See Compl. Ex. C. Sidley denies Watts’ allegations that this language was a “red flag,” and denies Watts’ allegation that a Sidley partner agreed with Watts’ characterization of it as such. See Answer ¶ 77. That issue, however, is not before the Court at this stage. Under the guise of seeking legal fees and costs from Sidley, Watts apparently is improperly seeking to “recover” from Sidley the costs of Watts’ “worldwide corruption audit,” “additional FCPA and anticorruption training for . . . the company’s locations in Europe,” a “risk assessment and anti-corruption compliance review of Watts’ international operations in Europe,” and “anticorruption testing at seven international Watts sites” (Compl. Ex. D (SEC Order) ¶ 17)—steps that Watts should have taken in any event, and that Sidley’s alleged negligence cannot have proximately caused. 10
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SUMMARY JUDGMENT STANDARD Summary judgment should be granted when “there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law.” Super. Ct. R. Civ. P. 56(c); see Gilbert v. Miodovnik, 990 A.2d 983, 988 (D.C. 2010). Summary judgment motions are commonly granted in legal malpractice cases when there is no viable cause of action. See, e.g., Biomet Inc. v. Finnegan Henderson LLP, 967 A.2d 662 (D.C. 2009). “A plaintiff needs to present proof on each element of the cause of action, but a defendant needs only to negate an element of a cause of action or show a complete defense.” 4 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice, § 37:12 (2012 ed.). Summary judgment is particularly appropriate when “the unresolved issues are primarily legal rather than factual.” Wyo. Outdoor Council v. Dombeck, 148 F. Supp. 2d 1, 7 (D.D.C. 2001). Here, the facts that require summary judgment appear on the face of the Complaint and its attachments, or in a few documents the authenticity of which cannot reasonably be disputed. ARGUMENT I. WATTS CANNOT SHIFT TO INNOCENT OUTSIDE COUNSEL THE CONSEQUENCES OF WATTS’ ILLEGAL CONDUCT. Watts’ claims against Sidley are premised on Watts’ allegations that employees of Watts and its wholly owned CWV subsidiary broke federal law for more than three years, yielding Watts an illegal, multi-million dollar profit. Watts now seeks to use this Court to recover that illegal profit, the fruits of its wrongdoing, by recovering it from former counsel. Watts’ request offends justice and common sense. It also contravenes a number of settled legal principles that deny recovery to a wrongdoer in these circumstances: (1) in pari delicto; (2) a lack of proximate causation; (3) a public policy against permitting wrongdoers to keep ill-gotten gains by shifting

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blame; and (4) contributory negligence. These principles have long been part of the fabric of the law, including in the District of Columbia. We address each in turn. A. In Pari Delicto Bars Watts’ Claims. 1. In Pari Delicto.

The doctrine of in pari delicto “is grounded on two premises: first, that courts should not lend their good offices to mediating disputes among wrongdoers; and second, that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality.” Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 306 (1985) (footnote omitted). The doctrine bars a plaintiff’s recovery where “the plaintiff bore at least substantially equal responsibility for his injury, and where the parties’ culpability arose out of the same illegal act.” Alberts v. Tuft (In re Greater Se. Cmty. Hosp. Corp.), 353 B.R. 324, 362 (Bankr. D.D.C. 2006) (dismissing legal malpractice case on in pari delicto grounds) (quoting Pinter v. Dahl, 486 U.S. 622, 632 (1988)). When applying in pari delicto, the acts of corporate agents are imputed to the corporation. See id. A corporation is “responsible for the acts of its authorized agents even if particular acts were unauthorized” because “[t]he risk of loss from the unauthorized acts of a dishonest agent falls on the principal that selected the agent.” Kirschner v. KPMG LLP, 938 N.E.2d 941, 950–51 (N.Y. 2010) (internal quotation marks omitted). The doctrine of in pari delicto is regularly applied in professional negligence cases, including in the District of Columbia. See In re Greater Se. Cmty. Hosp., 353 B.R. at 324. In the professional negligence context, courts repeatedly have held that in pari delicto bars claims where the plaintiff violated the law and thereafter attempts to recover from its attorneys for advising the plaintiff to violate the law or for not preventing the plaintiff from violating the law—conduct far worse than that alleged against Sidley. See Choquette v. Isacoff, 836 N.E.2d 329, 335 (Mass. App. Ct. 2005) (even where the attorney urged the client “to perform illegal 12

acts,” the client will not be permitted to “fil[e] suit against the attorney to recover damages incurred due to being caught”) (internal quotation marks omitted). See also Whiteheart v. Waller, 681 S.E.2d 419 (N.C. Ct. App. 2009) (in pari delicto barred plaintiff who knew his actions were unethical from bringing action for legal malpractice against his former counsel who was charged with failing to advise him not to send a defamatory letter), review denied, 693 S.E.2d 353 (N.C. 2010); Evans v. Cameron, 360 N.W.2d 25 (Wis. 1985) (in pari delicto applied where plaintiff followed lawyer’s advice to lie under oath because wrongfulness of lying under oath was apparent); USACM Liquidating Trust v. Deloitte & Touche LLP, 764 F. Supp. 2d 1210 (D. Nev. 2011) (accountants who negligently failed to prevent client’s Ponzi scheme could not be liable to the client under in pari delicto). If an attorney who advises his client to break the law cannot be liable to the law-breaking client, then, a fortiori, Sidley cannot be liable here. 2. The Complaint Establishes Watts’ Vastly Greater Culpability.

Watts admits it violated the FCPA. See, e.g., Compl. ¶ 20 (“Watts self-reported the violations . . . .”); see also id. ¶¶ 14, 19, 67, 72–74, 91, 106, 124; Compl. Ex. D (SEC Order) ¶ 1 (“This matter concerns violations of the . . . FCPA . . . by Watts Water Technologies, Inc.”).    Watts’ wholly owned subsidiary “made improper payments to” Chinese government officials (Compl. Ex. D (SEC Order) ¶ 1). “The purpose and effect of those payments was to influence the design institutes to recommend CWV valve products” (Id.). “The improper payments were facilitated by a sales incentive policy . . . adopted by [Watts’] CWV in December 2006” (Id. ¶ 11)—more than a year after Sidley’s due diligence had concluded. “CWV’s improper payments generated profits for Watts of more than $2.7 million” (Id. ¶ 2). Watts China’s Vice President of Sales “approved many of the payments . . . and knew or should have known that the payments were improperly recorded on Watts’ books as commissions.” Id. ¶ 3. And 13

 

The illegal payments were made after Watts’ then-Assistant General Counsel was provided with the Deloite financial due diligence report. Ex. 5 (Deloitte Rpt.) at 14–15.

In contrast to Watts’ wrongdoing, Sidley is alleged to have been, at worst, careless (an allegation that Sidley denies). See Count 1 (“Professional Negligence”). Summary judgment for Sidley under in pari delicto therefore is warranted. “The justice of the in pari delcito rule is most obvious where a willful wrongdoer is suing someone who is alleged to be merely negligent.” Kirschner, 938 N.E. 2d at 950–51. “We are not working here with narrow questions of technical law. We are applying fundamental concepts of morality and fair dealing . . . .” Id. at 950 (internal quotation marks omitted). Given the Complaint’s allegations that Watts violated the FCPA, the Court should enter summary judgment for Sidley under in pari delicto. B. Watts’ Wrongdoing Proximately Caused Its Own Alleged Losses.

To prevail on its claims, Watts would need to prove a “‘substantial and direct causal link’ between the attorney’s breach and the injury sustained by the client.” Dalo v. Kivitz, 596 A.2d 35, 41–42 (D.C. 1991). Watts cannot demonstrate a “substantial and direct causal link” between Sidley’s alleged negligence and Watts’ loss of its illegal profits—money to which Watts was never entitled in the first place. Nor can Watts demonstrate a “substantial and direct causal” link between Sidley’s alleged negligence and Watts’ other claimed damages, Watts’ legal expenses and its alleged “forced” sale of CWV at a loss. All of Watts’ claimed damages are direct consequences of Watts and CWV employees’ decisions to break the law long after the completion of Sidley’s agreedupon due diligence at the old Chinese company Changsha Valve. See, e.g., Compl. Ex. D (SEC Order) ¶ 3 (Watts China’s Vice President of Sales “approved many of the payments . . . and knew or should have known [they] were improperly recorded”). After Sidley’s work was 14

completed, Watts had an independent legal duty to maintain accurate books and records, to maintain adequate internal controls, and to prevent corrupt payments to government officials. See 15 U.S.C. §§ 78dd-l et seq. Watts has admitted that it failed to discharge that legal duty. See, e.g., Compl. ¶¶ 14, 19, 67, 72–74, 91, 106, 124. That is why it was punished. Watts’ wholly owned CWV subsidiary did not even exist until after the completion of Sidley’s work, and did not “adopt” its “illegal policy” until “December 2006.” Compl. Ex. D (SEC Order) ¶ 11. CWV employees’ decisions to violate the FCPA from 2006 through 2009 (and Watts’ failure to monitor their conduct), not Sidley’s work at Changsha Valve years earlier, proximately caused Watts’ losses. Watts is not relieved of its obligations to comply with the law just because a law firm allegedly failed to alert it to another company’s past conduct. The Court should enter summary judgment on Watts’ claims. 8 C. Watts’ Claims Violate Judicially Recognized Public Policy.

Watts seeks to recover from Sidley the penalties that Watts paid to the SEC for violations of federal law, and thereby seeks this Court’s aid in avoiding the consequences of its own wrongdoing. See Compl. ¶ 21. Allowing a proven wrongdoer to use a malpractice action to shift the consequences of its wrongdoing to counsel would offend public policy and undermine the very purpose of those legal penalties. In the context of punitive damages—which involves civil wrongs and not violations of a federal criminal statute—courts have not permitted a torfeasor-plaintiff to shift a punitive
8

Watts’ claim also is barred by the doctrine of intervening cause. As a matter of law, Watts’ CWV subsidiary’s intentional wrongdoing, from 2006 to 2009, broke the chain of causation from Sidley’s alleged negligence in 2004 and 2005. See, e.g., McKethean v. Wash. Metro. Area Transit Auth., 588 A.2d 708, 716 (D.C. 1991) (proximate cause is “that cause which, in natural and continual sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred”) (internal quotation marks omitted) (granting summary judgment). 15

damages award to its negligent attorney. A case on point is Paul v. Smith, Gambrell & Russell, 599 S.E. 2d 206, 211 (Ga. Ct. App. 2004), where the appeals court reasoned that the plaintiffs were “the active tortfeasor[s].” Accordingly, “to allow the plaintiffs to shift [to their former counsel] their tort liability for punitive damages that the plaintiffs were specifically found by clear and convincing evidence to have caused intentionally would be contrary to the public policy of Georgia.” 599 S.E. 2d at 211. See also Hicks v. Nunnery, 643 N.W. 2d 809, 824 (Wis. Ct. App. 2002) (“[A]s a matter of public policy, persons who actually commit the criminal offenses for which they are convicted should not be permitted to recover damages for legal malpractice from their former defense attorneys.”). See generally Restatement (Third) of The Law Governing Lawyers § 53 cmt. h (2000) (“Collecting punitive damages from the lawyer will neither punish nor deter the original tortfeasor . . . .”).9 The Court should apply the rule prohibiting the shifting of punitive awards from a tortfeasor to its counsel in the far more serious circumstances of this case, where the rule makes even more sense. Violating federal criminal laws is far worse than the civil wrongs for which punitive damages are assessed. A fortiori, the recovery Watts seeks should be denied. Disgorgement and penalties imposed by the SEC are designed to punish and deter conduct illegal under federal law. Watts’s other alleged damages—such as its legal fees to defend against criminal prosecution—are also a consequence of its wrongdoing. Allowing Watts to recover See also Ferguson v. Lieff, Cabraser, Heimann & Bernstein, LLP, 69 P.3d 965 (Cal. 2003) (attorney liability inconsistent with the purpose of punitive damages, which is to punish the wrongdoer and deter unlawful conduct; an award would be unjust because the amount of the award would have no relation to the gravity of the attorney’s misconduct or his or her wealth); Tri-G, Inc. v. Burke, Bosselman & Weaver, 856 N.E.2d 389, 413 (Ill. 2006) (“imposing liability for lost punitive damages on the negligent attorney would neither punish the culpable tortfeasor nor deter that tortfeasor and others from committing similar wrongful acts in the future. Also, the amount of the award bears no relationship to the gravity of the negligent attorney’s misconduct or the attorney’s wealth.”). 16
9

against its counsel, and thereby avoid the consequences of its wrongdoing, would be far worse than shifting a punitive damages award from a tortfeasor to its counsel. This Court should not permit Watts to use the Court’s offices to accomplish that perverse and unjust result. Summary judgment is warranted on this basis as well. D. Contributory Negligence Bars the Negligence Claims (Counts 1 and 3).

Sidley does not need to prove Watts’ obviously greater culpability to establish that summary judgment is warranted. Rather, if Watts was even slightly negligent—a conclusion the Complaint makes inescapable—then Watts is barred from recovery under the doctrine of contributory negligence. Under District of Columbia law, a plaintiff’s contributory negligence completely bars its recovery where the plaintiff’s negligence “was a substantial factor in causing the alleged damage or injury.” Massengale v. Pitts, 737 A.2d 1029, 1031 (D.C. 1999); see also Breezevale Ltd. v. Dickinson, 759 A.2d 627, 634 (D.C. 2000) (“[c]ontributory negligence is a complete bar to recovery” in a legal malpractice suit), vacated & reh’g granted by 769 A.2d 133, reaffirmed by 783 A.2d 573, 575 (D.C. 2001) (en banc); Wingfield v. People’s Drug Store, 379 A.2d 685, 687 (D.C. 1977) (“[T]he District of Columbia does not recognize different degrees of contributory negligence. The rule is simply that contributory negligence bars a plaintiff’s recovery.”). The Complaint and its attachment make clear that Watts’ FCPA problems stemmed from Watts’ negligence (or worse), and that its personnel were active participants:  Watts China’s Vice President of Sales “knew or should have known that the payments were improperly recorded” in violation of the FCPA (Compl. Ex. D (SEC Order) ¶ 3); Watts “failed to conduct adequate FCPA training for its employees in China until July 2009” (id. ¶ 9); Watts “failed to implement an FCPA compliance and training program commensurate with the extent of its international operations and its ownership of 17

 

CWV, a subsidiary that sold its products almost exclusively to” state-owned enterprises (id. ¶ 22); and  Watts “failed to devise and maintain a system of internal accounting controls sufficient to prevent and detect the payments” (id. ¶ 2).

Even absent these facts, it is undisputed that Deloitte specifically identified and reported Changsha Valve’s purported “kickback policy” to Watts in a Financial Due Diligence Report on November 19, 2004. See Ex. 5 (Deloitte Rpt.) at 14–15. Watts’ then-Assistant General Counsel (now General Counsel) admitted he “reviewed the . . . draft Financial Due Diligence report dated November 19, 2004 prepared by Deloitte & Touche” and had follow-up questions. Ex. 6 (6/13/05 Watts Memo). He raised no questions about the kickback policy, however, despite being a U.S. lawyer for a publicly traded company with 70 facilities worldwide. See id. Watts’ claim is barred by contributory negligence if the in-house lawyer was even slightly negligent. See, e.g., Karma Constr. Co. v. King, 296 A.2d 604, 605 (D.C. 1972) (per curiam) (corporate plaintiff’s claim barred by its employee’s contributory negligence). Watts’ Complaint alleges that a reasonably competent lawyer would have considered the “kickback policy” a “red flag.” See Compl. ¶ 15. Crediting that allegation, Watts’ Assistant General Counsel was at least as negligent as Sidley is alleged to have been; he allowed Watts to go forward with its conduct despite reading Deloitte’s written report. Watts’ contributory negligence, as established by Watts’ own Complaint and the foregoing undisputed facts, warrants summary judgment for Sidley as to Counts 1 and 3 (Professional Negligence and Negligent Misrepresentation). II. FCPA WORK WAS BEYOND THE SCOPE OF SIDLEY’S ENGAGEMENT. The attorney-client relationship is contractual and consensual, and lawyers are only required to advise clients on issues within the agreed-upon scope of their engagements. See Restatement of The Law Governing Lawyers (Third) § 16 cmt. c (2000) (“The lawyer’s duties 18

are ordinarily limited to matters covered by the representation.”); id. at § 50 cmt. d (a lawyer is not liable for failing to act beyond the scope of representation). For example, in AmBase Corp. v. Davis Polk & Wardwell, 866 N.E.2d 1033 (N.Y. 2007), a client had hired the law firm Davis Polk to litigate a tax dispute with the Internal Revenue Service before the Tax Court. During the Tax Court litigation, Davis Polk had been “provided with a copy of [an] Agreement” that “provided that [the client] was not primarily liable for the subject taxes in the underlying Tax Court proceeding—that primary liability rested with” another. 866 N.E.2d at 1036. But Davis Polk “never fully reviewed the document to determine what effect, if any, it had on the underlying dispute,” resulting in various damages to the client. Id. After the client filed a malpractice action against Davis Polk, New York’s highest court affirmed the action’s dismissal. The New York Court of Appeals reasoned: “Davis Polk was retained to litigate the amount of tax liability, and not to determine whether the tax liability could be allocated to another entity.” Id. at 1037. Whether another entity was liable for the alleged tax shortfall—as suggested by the document obtained by Davis Polk during its work—“was outside the scope of its representation,” thus requiring dismissal of the malpractice claim. Id. Likewise, in the venerable and often-cited Maryland decision Watson v. Calvert Building & Loan Ass’n, 45 A. 879, 880 (Md. 1900), the court of appeals held that an attorney hired to examine the title to real property and prepare a report had no obligation to also report a judgment and lien on that property. The court reasoned that the attorney had not been hired for general legal duties but for one specific task. See id. 10

See also, e.g., Spannaus v. Larkin, Hoffman, Daly & Lindgren, Ltd., 368 N.W.2d 395, 398 (Minn. Ct. App. 1985) (affirming summary judgment on malpractice claim where alleged negligence was outside the scope of the attorney-client relationship); Maillard v. Dowdell, 528 So. 2d 512 (Fla. Dist. Ct. App. 1988) (attorney hired to assist in condominium purchase had no duty to research claims against the condominium association); Hartz v. Farrugia, No. 06-3164, 19

10

Here, the contemporaneous documentary record proves that FCPA review was outside the scope of Sidley’s engagement. Changsha Valve, as a Chinese company operating within China, was not subject to the FCPA, and Watts was not proposing to buy Changsha Valve as an entity. Sidley specifically informed Watts of the planned scope of its due diligence by providing it with Sidley’s “due diligence checklist” before starting work. See Ex. 2 (DD Checklist); Ex. 3 (Certified Translation). The due diligence checklist made no mention of any due diligence to be conducted in connection with the FCPA. See id. The Sidley partner responsible for the due diligence wrote to Watts that Sidley “would conduct our legal DD [due diligence] based on the assumption of asset/business rather than equity acquisition and would focus our attention on the following two major issues (in addition to your specific concerns)”: (1) whether the assets were cleanly owned by Changsha Valve and (2) whether the assets proposed for sale can be lawfully sold to Watts. Ex. 4 (11/15/04 E-Mail Exchange) at 1. Watts agreed in writing to the scope of Sidley’s planned due diligence: “The checklist looks fine.” Id. at 2. Watts never requested that Sidley conduct due diligence directed at Changsha Valve’s compliance with the FCPA or any other laws of the United States. Lawyers have no duty to address issues outside the boundaries of their agreed-upon undertakings. See, e.g., Davis Polk, 866 N.E.2d at 1036. FCPA matters were not within the scope of Sidley’s agreed-upon due diligence. Summary judgment should be entered for Sidley for this reason as well.

2009 WL 901767, at *3 (E.D. La., Mar. 31, 2009) (“The attorney-client relationship is purely contractual and results only from the mutual agreement and understanding of the parties concerned. Such a relationship is based only upon the clear and express agreement of the parties as to the nature of the work to be undertaken by the attorney . . . .”) (internal quotation marks omitted), cert denied, 131 S. Ct. 104 (2010). 20

III.

THE STATUTE OF LIMITATIONS BARS ALL THREE COUNTS. A. The Breach of Contract Claim Is Time-Barred.

The statute of limitations for breach of contract is three years. See D.C. Code § 12301(7). The limitations period runs from the date the contract is breached. See Havens v. Patton Boggs LLP, No. 05-01454, 2006 WL 1773473, at *2 (D.D.C. June 26, 2006), aff’d, 235 F. App’x 750 (D.C. Cir. 2007); Allison v. Howard Univ., 209 F. Supp. 2d 55, 59 (D.D.C. 2002). See 31 Richard A. Lord, Williston on Contracts § 79:14 (4th ed. 1990) (“[A] cause of action in contract accrues at the time of the breach . . . irrespective of any knowledge on the part of the plaintiff or of any actual injury occasioned to him or her.”) (internal quotation marks omitted). The contract here (i.e., Sidley’s agreement to conduct due diligence) allegedly was breached in 2004 and 2005. See Compl. ¶ 104. This lawsuit was filed on June 6, 2012— approximately seven years after the alleged breach. The contract claim already was barred long before Watts requested, and Sidley agreed to, a tolling agreement in June 2011. Sidley made sure the parties’ tolling agreement expressly provided that “any statute of limitations or statute of repose that expired prior to [June 23, 2011] shall remain expired.” The contract claim, therefore, is barred by the three-year statute of limitations. B. The Negligence Claims Are Time-Barred.

D.C. Code § 12-301(8) prescribes a three-year statute of limitations for all actions “for which a limitation is not otherwise specially prescribed . . . .” Legal malpractice claims fall into this category, see Wagner v. Sellinger, 847 A.2d 1151, 1154 (D.C. 2004), as do negligent misrepresentation claims, id. Under the discovery rule employed in D.C., the statute of limitations begins to run when the plaintiff knows, or by the exercise of reasonable diligence should know (1) of the injury, (2) its cause in fact and (3) some evidence of wrongdoing. See Bussineau v. President & Directors of Georgetown Coll., 518 A.2d 423, 425 (D.C. 1986). 21

The undisputed facts are that Watts knew, or should have known, of its alleged injury, its alleged cause, and Sidley’s alleged negligence no later than December 2006. Watts’ “illegal policy” was “adopted by CWV in December 2006.” Compl. Ex. D (SEC Order) ¶ 11. As of December 2006, Watts therefore knew or should have known of the policy (as stated in the SEC Order11), knew that Sidley had not reported the policy, and (crediting Watts’ other allegations for purposes of this Motion) knew that it had overpaid for Changsha Valve’s assets. See Compl. ¶ 91 (“Watts purchased a company [sic] whose core business operations were built on an express system of paying kickbacks to government officials (including design institutes) to obtain or maintain business, which is a patent FCPA violation.”). Because Watts employees knew or should have known of Watts’ claim no later than December 2006, Watts’ negligence claims became barred by the three-year statute of limitations no later than December 2009, long before Watts belatedly sought a tolling agreement (in June 2011) or filed its complaint (in June 2012). Watts may argue that the “continuous representation doctrine” saves its expired professional negligence claim. This is incorrect. That doctrine tolls the statute of limitations for professional negligence claims during the attorneys’ continued representation of the client/plaintiff on the same specific matter that gave rise to the claim for malpractice. See R.D.H. Commc’ns, Ltd. v. Winston, 700 A.2d 766, 768 (D.C. 1997); see also Bradley v. Nat’l Ass’n of Sec. Dealers Dispute Resolution, Inc., 433 F.3d 846, 850 (D.C. Cir. 2005) (continuous representation rule no longer applies when “the attorney’s representation concerning [a] particular matter [at] issue is terminated.”) (emphasis added) (internal quotation marks omitted); See, e.g., Compl. Ex. D (SEC Order) ¶ 22 (Watts “failed to implement an FCPA compliance . . . program commensurate with the extent of its international operations and its ownership of . . . a subsidiary that sold its products almost exclusively to” state-owned enterprises”); id. ¶ 2 (Watts “failed to devise and maintain a system of internal accounting controls sufficient to prevent and detect the payments”). 22
11

4 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 23.13, at 498, 511–12 (2012 ed.) (question is “when the representation of the specific subject matter concluded,” and a “general ongoing relationship on other matters does not suffice”). Watts alleges that it “hired Sidley . . . to perform legal due diligence with respect to the potential acquisition” of Changsha Valve’s assets and businesses, and Sidley’s due diligence gives rise to Watts’ claim. Compl. ¶ 10 (emphasis added).12 Sidley’s legal due diligence in anticipation of the Changsha Valve transaction ended in 2005. Indeed, the Acquisition Agreement was signed on October 26, 2005. See Ex. 7 (10/26/05 Acq. Agmt.). As a matter of law and common sense, Sidley’s representation of Watts on “the specific subject matter” of preacquisition due diligence was concluded no later than the date the Acquisition Agreement was executed. The continuing representation doctrine therefore cannot have tolled the statute of limitations beyond that date. Watts’ claims are time-barred. The Court therefore should grant summary judgment. IV. SUMMARY JUDGMENT IS WARRANTED ON WATTS’ DUPLICATIVE COUNTS 2 AND 3. Where breach of contract and negligent misrepresentation claims are premised on the same facts, and seek identical relief, as a legal malpractice claim, those claims are duplicative and must be dismissed. See Biomet Inc. v. Finnegan Henderson LLP, 967 A.2d 662, 670 n. 4 See also, e.g., Compl. ¶ 38 (“On or around November 11, 2004, Watts instructed Sidley, and Sidley agreed, to conduct legal due diligence on Watts’ behalf with respect to the company.”); id. ¶ 13 (alleged negligence occurred “[i]n the course of [Sidley’s] legal due diligence.”); id. ¶ 55 (Sidley’s due diligence reports “constituted Sidley’s legal advice and counsel to Watts with respect to legal due diligence in preparation for Watts’ acquisition of [sic] Changsha Valve.”); id. ¶ 88 (“in the course of the legal due diligence examination of Changsha Valve, the applicable standard of care [allegedly] required Sidley to” perform certain tasks); id. ¶ 98 (parties’ engagement agreement “included Sidley’s agreement to conduct legal due diligence for Watts in connection with Watts’ assessment of its potential acquisition of Changsha Valve”); id. ¶ 120 (“Watts was relying on Sidley to provide complete and accurate statements regarding its legal due diligence . . . to . . . decid[e] to purchase Changsha Valve [sic].”). 23
12

(D.C. 2009) (“Biomet’s attempt to recast its malpractice argument as also breach of contract and breach of fiduciary duty fails”); Iacangelo v. Georgetown Univ., 760 F. Supp. 2d 63, 66 (D.D.C. 2011) (courts in malpractice cases must “as a matter of judicial economy” dismiss duplicative claims) (internal quotation marks omitted); cf. Meador v. Albanese Law Office, No. 5:08-cv-562, 2010 WL 3807163, at *4 (N.D.N.Y. Sept. 23, 2010) (“Where claims of negligence, breach of contract, breach of fiduciary duty, negligent misrepresentation, or fraudulent misrepresentation are premised on the same facts and seek identical relief as a claim for legal malpractice, those claims are duplicative and must be dismissed.”). In this case, the allegations describing the breach of contract claim (Count 2) are materially identical to the allegations describing the professional negligence claim (Count 1). Compare Compl. ¶¶ 85–95, with Compl. ¶¶ 96–107. Similarly, the allegations supporting the negligent misrepresentation claim (Count 3) are materially identical to the allegations supporting the legal malpractice claim. Compare Compl. ¶¶ 85–95, with Compl. ¶¶ 108–25. All three counts seek the same relief. Accordingly, the Court should enter summary judgment in favor of Sidley on Counts 2 and 3. See N. Am. Catholic Educ. Programming Found., Inc. v. Womble Carlye Sandridge & Rice, PLLC, 800 F. Supp. 2d 239, 244 (D.D.C. 2011) (dismissing contract and other duplicative claims upon determining that plaintiff could not demonstrate causation in its legal malpractice claim). CONCLUSION For the forgoing reasons, the court should grant summary judgment for defendant Sidley Austin LLP on all counts.

24

Dated: July 27, 2012 Respectfully submitted, WILLIAMS & CONNOLLY LLP By: /s/ John K. Villa John K. Villa (D.C. Bar No. 220392) Charles Davant IV (D.C. Bar No. 484305) Marcus P. Smith (D.C. Bar No. 996721) 725 Twelfth Street, N.W. Washington, DC 20005 Telephone: (202) 434-5000 Facsimile: (202) 434-5029 E-Mail: jvilla@wc.com cdavant@wc.com msmith@wc.com Counsel for Sidley Austin LLP

25

IN THE SUPERIOR COURT FOR THE DISTRICT OF COLUMBIA CIVIL DIVISION

WATTS WATER TECHNOLOGIES, INC. PLAINTIFF,
V.

2012 CA 004847 M Hon. Gregory E. Jackson Next Court Date: September 7, 2012, 9:30 a.m.

SIDLEY AUSTIN LLP, DEFENDANT.

Event: Initial Scheduling Conference

STATEMENT OF UNDISPUTED FACTS Pursuant to Rule 12-I(k) of the Rules of Civil Procedure, Defendant Sidley Austin LLP hereby sets forth facts as to which there is no genuine issue.1 1. Exhibit 1 includes a true and correct copy of an e-mail that Sin Leong Ho sent to

Zhengyu Tang on or around November 12, 2004. 2. Exhibit 2 is a true and correct copy of an e-mail and attachment that Zhengyu

Tang sent to Sin Leong Ho on or around November 12, 2004. 3. 4. Exhibit 3 is a translation of the attachment to Exhibit 2. Exhibit 4 is a true and correct copy of an e-mail exchange between Sin Leong Ho

and Zhengyu Tang on or around November 15, 2004.

1

The cited exhibits are exhibits to the Memorandum of Points and Authorities in Support of the Motion for Summary Judgment filed herewith. For the Court’s convenience, Defendant’s counsel has added underlining and arrows to indicate relevant passages. Defendant Sidley Austin LLP does not here repeat the facts that are alleged in the Complaint and that are expressly relied upon in the Memorandum of Points and Authorities. Those facts are taken as true only for purposes of this Motion.

5.

Exhibit 5 is a true and correct copy of a “Financial Due Diligence—1st and 2nd

Phase Draft” dated November 19, 2004 and prepared by Deloitte & Touche Corporate Finance Ltd. for Watts (“the Deloitte Report”). 6. Exhibit 6 is a true and correct copy of a memo by Watts’ then-Assistant General

Counsel dated June 13, 2005. 7. In November 2004, Sin Leong Ho was an employee or agent of Plaintiff Watts

Water Technologies, Inc. (formerly known as Watts Industries, Inc.) (“Watts”). See Ex. 1 (11/12/04 Ho E-Mail). 8. Between November 2008 and June 2009, Leesen Chang was an employee or

agent of Watts. See Compl. Ex. D (SEC Order) ¶ 5. 9. No officer, employee, or agent of Watts specifically requested, in writing or

orally, that Sidley make an inquiry into whether Changsha Valve made payments to government employees. See, e.g., Ex. 4 (11/15/04 E-Mail Exchange); Ex. 6 (6/13/05 Watts Memo). 10. No officer, employee, or agent of Watts specifically requested, in writing or

orally, that Sidley Austin Brown & Wood (“Sidley”) make an inquiry into whether Changsha Valve had complied with the Foreign Corrupt Practices Act, any other anti-bribery law, or any other law of the United States. See, e.g., Ex. 4 (11/15/04 E-Mail Exchange); Ex. 6 (6/13/05 Watts Memo). 11. In November 2005, Watts formed Watts Valve (Changsha) Co., Ltd. (“CWV”) as

a wholly owned subsidiary. See Compl. Ex. D (SEC Order) ¶ 1. 12. No officer, employee, or agent of Watts specifically requested, in writing or

orally, that Sidley conduct an investigation into, or offer an opinion on, whether CWV was complying with the FCPA.

13.

No officer, employee, or agent of Watts specifically requested, in writing or

orally, that Sidley conduct an investigation into, or offer an opinion on, whether Watts was complying with the FCPA. 14. Sidley’s due diligence in connection with Watts’ Changsha Valve transaction

concluded before June 23, 2008. See Ex. 7 (10/26/05 Acq. Agmt.). 15. On or before June 13, 2005, Watts’ Assistant General Counsel reviewed the

Deloitte Report. See Ex. 6 (6/13/05 Watts Memo). 16. Agmt.). 17. The statements of fact in the SEC Order attached to the Complaint reflect the CWV did not acquire Changsha Valve’s equity. See Ex. 7 (10/26/05 Acq.

substance of facts that Watts (through counsel) communicated to the Securities and Exchange Commission. See Compl. Ex. D (SEC Order) at 2 n.1. 18. The findings in the SEC Order attached to the Complaint were made pursuant to

Watts’ Offer of Settlement. See id. 19. Watts consented to entry of the SEC Order. See id. at 1.

Dated: July 27, 2012 Respectfully submitted, WILLIAMS & CONNOLLY LLP By: /s/ John K. Villa John K. Villa (D.C. Bar No. 220392) Charles Davant IV (D.C. Bar No. 484305) Marcus P. Smith (D.C. Bar No. 996721) 725 Twelfth Street, N.W. Washington, DC 20005 Telephone: (202) 434-5000 Facsimile: (202) 434-5029

E-Mail: jvilla@wc.com cdavant@wc.com msmith@wc.com Counsel for Sidley Austin LLP

IN THE SUPERIOR COURT FOR THE DISTRICT OF COLUMBIA CIVIL DIVISION WATTS WATER TECHNOLOGIES, INC. 2012 CA 004847 M PLAINTIFF, Hon. Gregory E. Jackson
V.

SIDLEY AUSTIN LLP, DEFENDANT.

Next Court Date: September 7, 2012, 9:30 a.m. Event: Initial Scheduling Conference [PROPOSED] ORDER

Upon consideration of Defendant’s Motion for Summary Judgment, the Opposition thereto, and the entire record in this matter, it is HEREBY ORDERED this __ day of __________________, 2012, THAT: Defendant’s Motion be and hereby is GRANTED; and it is FURTHER ORDERED THAT: the Clerk shall enter JUDGMENT FOR DEFENDANT. _______________________________ Hon. Gregory E. Jackson Superior Court Judge

Copies to: Barry J. Nace, Esq. Christopher T. Nace, Esq. Paulson & Nace, PLLC 1615 New Hampshire Avenue, N.W. Washington, DC 20009 H. Lamar Mixson, Esq. Jason J. Carter, Esq. Bondurant, Mixson & Elmore, LLP 1201 West Peachtree Street, Suite 3900 Atlanta, GA 30309 Counsel for Plaintiff Watts Water Technologies, Inc. John K. Villa, Esq. Charles Davant IV, Esq. Marcus P. Smith, Esq. Williams & Connolly LLP 725 Twelfth Street, N.W. Washington, DC 20005 Counsel for Defendant Sidley Austin LLP

CERTIFICATE OF SERVICE I hereby certify that on this July 27, 2012, I caused a true and accurate copy of Defendant’s Motion for Summary Judgment, Memorandum in Support Thereof, Statement of Undisputed Facts, and proposed Order to be served on the following via CaseFileXpress: Barry J. Nace, Esq. Christopher T. Nace, Esq. Paulson & Nace, PLLC 1615 New Hampshire Avenue, N.W. Washington, DC 20009 /s/ Charles Davant IV Williams & Connolly LLP 725 Twelfth Street, N.W. Washington, DC 20005 cdavant@wc.com Counsel for Defendant Sidley Austin LLP

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