854 F.2d 1122 (8th Cir. 1988), 87-5349, Greyhound Leasing & Financial Corp. v. Norwest Bank of Jamestown, N.W.

Docket Nº:87-5349.
Citation:854 F.2d 1122
Party Name:GREYHOUND LEASING & FINANCIAL CORPORATION, Appellant, v. NORWEST BANK OF JAMESTOWN, N.W.; Wimbledon Implement, Inc.; Russell Hoggarth; Henry K. Mackenzie; the partnership of Mackenzie, Jungroth, Mackenzie and Reisnour; the partnership of Jungroth, Mackenzie and Reisnour; and James R. Jungroth, Appellees.
Case Date:August 26, 1988
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
 
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Page 1122

854 F.2d 1122 (8th Cir. 1988)

GREYHOUND LEASING & FINANCIAL CORPORATION, Appellant,

v.

NORWEST BANK OF JAMESTOWN, N.W.; Wimbledon Implement, Inc.;

Russell Hoggarth; Henry K. Mackenzie; the partnership of

Mackenzie, Jungroth, Mackenzie and Reisnour; the

partnership of Jungroth, Mackenzie and Reisnour; and James

R. Jungroth, Appellees.

No. 87-5349.

United States Court of Appeals, Eighth Circuit

August 26, 1988

Submitted May 11, 1988.

Thomas Darling, Minneapolis, Minn., for appellant.

Mart R. Vogel, Fargo, N.D., for appellees.

Before HEANEY, Circuit Judge, McMILLIAN, Circuit Judge, and HILL [*], Senior District Judge.

IRVING HILL, Senior District Judge.

In this opinion we affirm a district court judgment in favor of a lawyer charged with professional negligence.

FACTS

Appellant Greyhound Leasing & Financial Corporation ("Greyhound"), among its other businesses, leases farm machinery and equipment to farmers and finances farmers' purchase of such equipment. In 1982, a loan broker named Kuehl brought to Greyhound a proposal to loan over $1 million to a Jamestown, North Dakota farmer named Mutschler. At the time Mutschler was regarded by banks and others in his home community as a successful, prosperous and reputable farmer who owned and farmed large valuable land holdings. The loan was to be secured by a first lien on many pieces of farm equipment. 1 After investigation, Greyhound decided

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to go forward with the loan and began the preparation of appropriate documents.

The documents prepared by Greyhound for the transaction did not reveal its true nature. The documents were drawn so as to portray Greyhound as having bought the farm equipment in question, all new, from a local farm equipment dealer, Wimbledon Implement Inc. ("Wimbledon"), and, simultaneously with its purchase, leasing the equipment to Mutschler. Greyhound insisted on structuring the deal in this fashion, rather than as a loan or financing agreement, so that it could obtain both the investment tax credit and depreciation on the farm machinery. On a straight loan or financing deal, Greyhound would get neither tax advantage.

In reality, none of the machinery and equipment covered by the loan was new, except for one tractor that had not yet been delivered to Mutschler. Mutschler had already owned and possessed all of the other equipment for many months, some for a year or more. He had bought some of it from Wimbledon and some from other vendors. Either at the time of his original purchase or during his months of possession, Mutschler had created liens on all of the already owned equipment. Among the lien holders were Wimbledon, John Deere and others.

The district judge 2 found that Greyhound employees knew or should have known that practically all of the equipment was old and had been owned and possessed by Mutschler for a long time. He further found that those facts were known to Greyhound's broker, Kuehl, whose knowledge he imputed to Greyhound. Both Greyhound and Kuehl, however, were unaware of the liens.

To evidence the purported purchase and lease transaction Greyhound created and prescribed a number of documents which it required be executed according to its directions. Among them was an attorney's opinion letter to be signed by the lessee's own local attorney. The text of the opinion letter which Greyhound prescribed is set forth in the appendix. The operative paragraph is a statement by the lawyer to Greyhound that the lawyer is "not aware of any liens or encumbrances ... created or suffered by the lessee nor have they granted or conveyed any liens or encumbrances of any nature with respect thereto ..." 3

Greyhound desired the lessee's own local lawyer to sign the opinion letter because it believed that such a lawyer would be familiar with the lessee's prior business activities. That expectation was not fulfilled in this case. Mutschler selected Mr. H.K. Mackenzie of the Jamestown, North Dakota firm of Jungroth, Mackenzie and Reisnour. Mackenzie had never done any work for Mutschler before. Mackenzie signed the opinion letter on the day he was first contacted by Mutschler.

Mutschler brought to Mackenzie not only the prescribed opinion letter form but also some other documents connected with the transaction, all in the form which Greyhound had required. Included was a lease agreement between Greyhound and Mutschler purporting to describe a lease of new equipment. Mackenzie orally inquired of Mutschler whether the equipment was in fact new. Mutschler assured him that it was. Mackenzie also orally inquired whether Mutschler had yet obtained possession of the equipment or any ownership interest in it. Mutschler answered in the negative. Mackenzie then, without further inquiry or checking, signed the opinion letter.

In North Dakota, liens on farm equipment are registered in...

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