blue flame 111720

Date: 2020-11-17

Summary

Transcript of a motion hearing held by teleconference on November 17, 2020 before Judge Leonie M. Brinkema in the U.S. District Court for the Eastern District of Virginia, in Blue Flame Medical LLC v. Chain Bridge Bank, N.A., John J. Brough, and David M. Evinger, Civil Action No. 1:20cv658, filed November 18, 2020 as Document 69. The hearing concerns the plaintiff's motion to dismiss Chain Bridge Bank's two-count counterclaim seeking attorneys' fees and expenses. Counsel for the bank argues that the conduct giving rise to the fees occurred while the account agreement was in force; counsel for Blue Flame argues the cause of action accrued only when the lawsuit was filed, after the account had been closed. The court asks about the absence of a survivorship clause and notes a new standing order, Order 2020-22, suspending criminal jury trials.

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Case 1:20-cv-00658-LMB-IDD Document 69 Filed 11/18/20 Page 1 of 14 PageID# 489

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION

BLUE FLAME MEDICAL LLC, . Civil Action No. 1:20cv658
.
Plaintiff, .
.
vs. . Alexandria, Virginia
. November 17, 2020
CHAIN BRIDGE BANK, N.A., . 10:07 a.m.
JOHN J. BROUGH, and .
DAVID M. EVINGER, .
.
Defendants, .
.
------------------------------X
CHAIN BRIDGE BANK, N.A., .
.
Counterclaim Plaintiff, .
.
vs. .
.
BLUE FLAME MEDICAL LLC, .
.
Counterclaim Defendant. .
.
------------------------------X
.
CHAIN BRIDGE BANK, N.A., .
.
Third-Party Plaintiff, .
.
vs. .
.
JPMORGAN CHASE BANK, N.A., .
.
Third-Party Defendant. .
.
. . . . . . . . . . X

TRANSCRIPT OF MOTION HEARING
BEFORE THE HONORABLE LEONIE M. BRINKEMA
UNITED STATES DISTRICT JUDGE
(Via Teleconference)

(Pages 1 - 14)

COMPUTERIZED TRANSCRIPTION OF STENOGRAPHIC NOTES

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
Case 1:20-cv-00658-LMB-IDD Document 69 Filed 11/18/20 Page 2 of 14 PageID# 490

1 APPEARANCES:

2 FOR BLUE FLAME MEDICAL LLC: PETER H. WHITE, ESQ.
Schulte Roth & Zabel LLP
3 901 15th Street, N.W., Suite 800
Washington, DC. 20005
4

5 FOR CHAIN BRIDGE BANK, N.A.; DONALD BURKE, ESQ.
JOHN J. BROUGH; AND Robbins Russell Englert Orseck
6 DAVID M. EVINGER: Untereiner & Sauber LLP
2000 K Street, N.W., 4th Floor
7 Washington, DC. 20006

8
FOR JPMORGAN CHASE MEREDITH K. LORETTA, ESQ.
9 BANK, N.A.: ALBINAS J. PRIZGINTAS, ESQ.
Wilmer Cutler Pickering Hale &
10 Dorr LLP
1875 Pennsylvania Avenue, N.W.
11 Washington, D.C. 20006

12
OFFICIAL COURT REPORTER: ANNELIESE J. THOMSON, RDR, CRR
13 U.S. District Court, Third Floor
401 Courthouse Square
14 Alexandria, VA 22314
(703)299-8595
15

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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1 P R O C E E D I N G S

2 THE COURT: All right, counsel, can you hear me now?

3 MR. WHITE: Yes, Your Honor. This is Pete White for

4 Blue Flame Medical. I can hear you fine.

5 THE COURT: All right, that's fine. We've got a

6 different phone. For some reason, mine is not working. All

7 right.

8 And do we have anybody here for Chain Bridge?

9 MR. BURKE: Good morning. This is Donald Burke for

10 Chain Bridge Bank. Can you folks hear me?

11 THE COURT: Yes, we can hear you just fine.

12 And how about -- JPMorgan is not really involved in

13 this directly. Is there anyone here for JPMorgan?

14 MR. PRIZGINTAS: Yes, Your Honor. This is Albinas

15 Prizgintas for JPMorgan Chase Bank, N.A.

16 THE COURT: All right. Can you spell your last name,

17 please, because I don't have you on my list.

18 MR. PRIZGINTAS: Certainly. It's P -- as in Paul --

19 r-i-z-g-i-n -- as in Nancy -- t-a-s -- as in Sam.

20 THE COURT: Okay. All right, this is --

21 MS. LORETTA: Meredith Loretta is also here from

22 Wilmer Hale, representing JPMorgan Chase.

23 THE COURT: All right. Now, counsel, we're on the

24 record, but my court reporter is working under difficult

25 circumstances because we're in a different room. You need to

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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1 state your name very clearly before you speak.

2 And this is Civil Action 20cv658, Blue Flame Medical

3 LLC versus Chain Bridge Bank, et al., and Chain Bridge Bank by

4 itself versus JPMorgan Bank.

5 Now, the only issue before us today is the

6 plaintiff -- plaintiff/counterclaim defendant's motion to

7 dismiss the two-count counterclaim by Blue Flame Medical -- I'm

8 sorry, by the -- the two-count complaint that Chain Bridge has

9 filed against Blue Flame Medical, and that is a claim that

10 seeks the attorneys' fees and expenses involved in defending

11 against this case.

12 I think what I want to hear, because I'm still very

13 uncomfortable with the law on this, Mr. Burke, have you been

14 able to find any cases that actually support your argument that

15 you could still claim attorneys' fees and expenses under a

16 contract that you terminated two-and-a-half months before the

17 lawsuit was filed?

18 MR. BURKE: Your Honor, this is Donald Burke. I

19 don't think we have identified any case that awarded attorneys'

20 fees in precisely that situation, but I think the authorities

21 we marshalled in our briefs convincingly demonstrate that

22 there's no barrier to seeking damages for liability that

23 accrued during the period in which a contract was enforced --

24 excuse me, in force, and parties do that routinely even long

25 after termination. It's, in fact, very common for courts to

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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1 award damages under a contract that's been terminated

2 previously.

3 So although I can't point to you, you know, any, any

4 particular case that has awarded attorneys' fees under that

5 precise circumstance, I don't think there's any legal barrier

6 to doing so in this case.

7 THE COURT: But as you've actually articulated the

8 situation, haven't you actually shown how you don't have a

9 cause of action here? Because the conduct that has led your

10 client to incur attorneys' fees and expenses occurs after the

11 contract has been terminated.

12 In other words, as the -- you terminated the contract

13 on March 26 of 2020. That's when you closed the account, which

14 essentially ends your relationship with Blue Flame. Blue Flame

15 doesn't file a lawsuit until almost two-and-a-half months

16 later, after the account was closed. So it is the filing of

17 that lawsuit and your need to expend money to pay for attorneys

18 to defend that case, all of that arose after the contract had

19 terminated.

20 Doesn't that mean -- and your contract didn't have

21 any language within it that would suggest that the obligation

22 to pay attorneys' fees extended beyond the life of the

23 contract, no survivorship kind of clause. So how do you get

24 around that problem?

25 MR. BURKE: Well, I think I respectfully disagree

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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1 with the basic description of the claim here. In fact, the

2 action that Blue Flame took that has led to the bank's need to

3 seek the advice of an attorney is inducing California officials

4 to send a wire transfer on March 26, which, of course, occurred

5 before the termination of the contract. So our point is that

6 the, the conduct giving rise to the attorneys' fees here

7 actually did occur during the period in which the contract was

8 in force.

9 Now, maybe Blue Flame may assert that there's some

10 factual dispute about whether our fees here are really

11 attributable to that action rather than events that took place,

12 you know, more recently after the termination of the contract,

13 but it's still a -- I don't think that's a basis for dismissal

14 of our claims on the pleadings. That's an issue that could be

15 addressed at summary judgment or later in the case, but I think

16 it would be premature to resolve that issue at this stage.

17 THE COURT: But the fact that California wired money

18 to your bank did not in any respect require you to seek the

19 advice of counsel, which required you to -- what requires Chain

20 Bridge Bank to expend money to hire an attorney and to go to

21 the expense of litigation is the filing of the lawsuit.

22 I don't know how you can connect -- I mean, it's true

23 that had the wire transfer not occurred in the first place,

24 there'd be no -- there never would have been a dispute between

25 you-all, but that's, that's not what's causing you to have to

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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1 expend those fees. I don't, I don't think you have any kind of

2 legal support for the claim you're making.

3 And my understanding is you're also seeking the same

4 type of fees and expenses from JPMorgan under a completely

5 different theory, which might give you a much better shot at

6 that. As I understand it, you've got almost a statutory basis

7 that may support you in that respect.

8 MR. BURKE: Well, that is true, Your Honor, that we,

9 we have asserted a claim for indemnification against JPMorgan,

10 but I don't think the availability of that claim really bears

11 on whether our claim directly against Blue Flame should be

12 allowed to proceed or not. Of course, you know, the bank is

13 entitled to pursue whatever sources of indemnification and

14 attorneys' fees are available to it.

15 And just to return briefly to the point about when

16 the relevant events occurred here, I think that the key point

17 from our perspective is that all of the, the issues here that

18 have given rise to the claim for attorneys' fees can be traced

19 back to Blue Flame's conduct that occurred during the period in

20 which the contract was in force.

21 It is obviously true that more recent events have

22 increased the amount of the fees for which Blue Flame should be

23 liable, but when you, when you consider the actual source of

24 the attorneys' fee claim here, it's a dispute and it's an

25 action that Blue Flame took during the period in which the

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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1 contract was in force.

2 THE COURT: All right. Mr. White, would you agree

3 that if the bank had not cancelled your account but had allowed

4 your account to stay open, that they would now be able to

5 recover their fees and expenses?

6 MR. WHITE: This is Peter White for Blue Flame

7 Medical. Yes, Your Honor, I would agree. I think you've put

8 your finger on the unified principle behind all of these cases,

9 which is you look to when the cause of action accrued. If the

10 cause of action accrued during the contract, then there can be

11 continuing obligations. That happens all the time in breach of

12 contract cases.

13 They haven't alleged a breach of contract case.

14 Their counterclaim alleges that something happened on June 12,

15 2020, that gave rise to this cause of action and gave rise to

16 this remedy. That was the filing of the lawsuit.

17 And the cases are unanimous in saying that the party

18 cannot unilaterally terminate a contract and then claim a

19 benefit that would exist only under the contract for something

20 that occurred later. So I think that's the unifying principle

21 behind all of these cases, and clearly, you know, there's no

22 dispute about the facts or even the law, but their --

23 counterclaim plaintiffs do -- say the same thing that we do,

24 that if you terminate a contract unilaterally and terminate

25 your own obligation, then you terminate the other party's

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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1 obligations to you at the same time. You can't pick and

2 choose.

3 MR. BURKE: Your Honor, this is Donald Burke. Can I

4 also respond briefly to your question?

5 THE COURT: Go ahead.

6 MR. BURKE: I think that -- what I wanted to point

7 out is that the way that you had phrased the question, I think,

8 really highlights the absurdity of Blue Flame's position here,

9 that the way that their argument works, it would suggest that

10 the bank has to continue doing business with a party no matter

11 how obvious the fraud or illegality that party has engaged in

12 if the bank wants to continue to be able to enforce its right

13 to attorneys' fees, and I think that just doesn't make sense.

14 It's a reasonable self-protective step for the bank

15 to stop doing business with a party that is engaged in that

16 sort of conduct, and it doesn't make sense to -- for the party

17 to agree that taking that step would result in a forfeiture of

18 the bank's attorneys' fees claim.

19 THE COURT: Well, your other option would be to

20 freeze the account, would it not be? In other words, you'd

21 still have the account open, but no activity could occur. That

22 way you'd be protecting the bank from any lawsuits from third

23 parties or from any other liability, and, in fact, your

24 agreement sort of envisions that, and one of the arguments the

25 plaintiff has made is that because the contract actually

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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10

1 includes language about the bank's ability to take funds out of

2 the account to reimburse itself for, for example, attorneys'

3 fees it might have to incur, that by having unilaterally ended

4 the contract rather than just freezing the account, you've left

5 yourself open for the problem you're in right now.

6 MR. BURKE: Well, Your Honor, I do suppose it's

7 possible that the bank could have taken that step of just

8 freezing the account or leaving the account agreement in place,

9 but I think in those circumstances, you'd still have the

10 problem of, you know, at least formally being in business with

11 a counter-party that, you know, may have engaged in conduct

12 that you just no longer wanted to be associated with anymore.

13 And I think more to the point that strikes me as a,

14 sort of a formalistic line to draw that doesn't really make any

15 sense, you know, if it's true that the bank could have frozen

16 the account and kept the attorneys' fee obligation in place, I

17 don't think there's much of a substantive difference between

18 that and what the bank actually did here, so I don't think that

19 should lead to a difference in result.

20 THE COURT: Well, Mr. White, what if a third party

21 discovered that your client had committed some sort of a fraud

22 using its Chain Bridge Bank account, all right? Slightly

23 different fact pattern here, all right? And let's say that the

24 bank in the meantime had ended the account. So the account was

25 closed, as it is now, but two months after the bank closed your

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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11

1 account, this third party sues the bank because it had allowed

2 your client to use the account to commit a fraud.

3 And let's say that the bank is successful in

4 defending itself against any liability in that case, and they

5 then turn and file a suit against your client seeking

6 reimbursement for the fees it had incurred in having to defend

7 itself against that lawsuit. Why would it not be able to get

8 the fees under that scenario?

9 MR. WHITE: Your Honor, Peter White for Blue Flame

10 Medical. I'd like to start with that's not the situation here.

11 There is no claim for fraud or breach of contract here.

12 THE COURT: No, no, I understand that, but --

13 MR. WHITE: I understand. I'm not sure, they may

14 well be able to in that circumstance, because the cause of

15 action, if there were a fraud on the bank itself, if the bank

16 were a victim of fraud by a customer during the lifetime of the

17 contract that existed, they may well be able to sue the

18 customer for legal fees in connection with their defense or

19 prosecution of that fraud under this contractual term. That's

20 because that claim would have arisen at the time that the

21 contract was in place.

22 They have made no allegations that any claim here

23 arose at the time the contract was in place. They haven't

24 alleged breach of contract, nor could they. They haven't

25 alleged fraud, nor could they.

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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1 What they've alleged is that a cause of action

2 accrued when this lawsuit was filed, which, as the Court has

3 noted, was two-and-a-half months after they universally --

4 unilaterally terminated both sides' obligations under the

5 contract.

6 THE COURT: Well, the cause of action, that is,

7 the -- in the example that I gave you, the fraud, which is the

8 cause of action, occurred while the contract was in place.

9 Here, although it's not the cause of action -- it is still --

10 it's the lawsuit, yeah. It is still in my view -- it's a close

11 question; I have no doubt about that; and the fact that we

12 don't have any really direct case law is problematic; but,

13 Mr. Burke, I am satisfied although it's a close question, that

14 I don't think because of the way this occurred and the fact

15 that it is the lawsuit, it is your being sued that creates the

16 damage to Chain Bank -- Chain Bridge Bank in terms of having to

17 hire counsel and having to pay counsel's fees and the expenses

18 of litigation, that activity occurs two-and-a-half months after

19 the contract has ended; and I think because there's nothing in

20 the contract that would suggest that somehow there would be

21 spillover or continuing liability for that type of situation, I

22 am going to grant the motion to dismiss both counts.

23 I mean, the declaratory judgment, Count 2, is really

24 duplicative of Count 1 in my view. And so I'm going to grant

25 the motion.

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13

1 And again, counsel, I think the last time you were

2 before us, we suggested that you-all might want to see whether

3 this is a case that can be resolved. It doesn't have direct

4 impact for you; but you should know that the chief judge issued

5 a new standing order today, it's Order 2020-22, in light of the

6 COVID virus spread in the area, we have now terminated all

7 criminal jury trials -- of course, we weren't conducting civil

8 trials in any case -- and there'll be no criminal jury trials

9 until at least January 19; and we'll have to see where we go

10 from there; but I can tell you right now that my estimate would

11 be that any civil jury trials at this point, I think it's

12 realistic to expect that there will not be any tried until at

13 least May or June at the earliest. So it continues to prolong

14 this litigation, which is something you-all might want to think

15 about.

16 But thank you for calling in. I'm sorry we had that

17 confusion at the beginning, but we were able to hear you, and

18 there will be a transcript available if you need one. Thank

19 you for calling in.

20 MR. WHITE: Thank you for hearing us, Your Honor.

21 MR. BURKE: Thank you, Your Honor.

22 (Which were all the proceedings

23 had at this time.)

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595
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14

1 CERTIFICATE OF THE REPORTER

2 I certify that the foregoing is a correct transcript of

3 the record of proceedings in the above-entitled matter.

6 /s/
Anneliese J. Thomson
7

Anneliese J. Thomson OCR-USDC/EDVA (703)299-8595

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blue flame 111720

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