General Nutrition Corporation v. Gardere Wynne Sewell, LLP

According to General Nutrition Corporation (GNC) (plaintiff), GNC hired the law firm Gardere Wynne Sewell, LLP (Gardere) (defendant) to provide legal advice regarding the consequences if GNC was to terminate contracts with Franklin Publications, Inc. (Franklin) for the production, purchase, and sale of two magazines. Gardere advised GNC that the contracts involved a sale of goods, they would be governed by the Uniform Commercial Code (UCC), Franklin’s recoverable damages would range from $1 million to $3 million, and Franklin would not be able to recover its lost profits of about $34.5 million. The UCC did not permit recovery for consequential damages like lost profits. Acting on Gardere’s advice, GNC terminated its contracts with Franklin, and Franklin sued GNC. In July 2007, the district court in the Franklin suit ruled on summary judgment that the contracts primarily involved a sale of services and that the UCC did not apply. After receiving this adverse ruling, GNC fired Gardere and paid a substantial sum to Franklin to settle the lawsuit. In 2008, GNC filed a legal-malpractice action against Gardere, asserting claims of negligence, breach of contract, and breach of fiduciary duty. The operative complaint alleged facts indicating that GNC had no reason to know of Gardere’s faulty and substandard legal advice until the district court’s summary-judgment ruling. Gardere filed a motion to dismiss the claims, arguing that the negligence claim was untimely or barred by GNC’s settlement with Franklin, that the breach-of-contract claim was duplicative of the negligence claim, and that the alleged facts did not support a breach of fiduciary duty.