Gerdes v. Estate of Cush

Decision Date11 February 1992
Docket NumberNo. 90-3586,90-3586
Citation953 F.2d 201
PartiesRudolph GERDES, Plaintiff-Appellant, v. ESTATE OF Maynard CUSH, et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Dennis R. Whalen, Patrick F. McGrew, Baton Rouge, La., for Rudolph Gerdes.

Donald S. Zuber, Seale, Smith & Phelps, Baton Rouge, La., for Estate of Maynard E. Cush and Anne Fiske.

J. Walter Ward, Jr., Christovich & Kearney, New Orleans, La., for National Union.

Appeal from the United States District Court for the Middle District of Louisiana.

Before DAVIS and BARKSDALE, Circuit Judges, and MENTZ, District Judge. 1

PER CURIAM.

This appeal is taken from the district court's judgment dismissing appellant's claims on the basis of prescription. The primary issue is the applicable statute of limitations for claims based on negligent actions of an attorney serving as a mandatary under Louisiana law. Appellant also raises issues regarding insurance coverage. Because we AFFIRM the district court on the prescription issue, we do not reach the insurance issues.

I.

This case stems from the "Deal of the Century"--a deal that definitely turned out to be too good to be true. Rudolph Gerdes, a Dutch citizen residing in Belgium, was the sole owner of all stock in ALCARU Investments (ALCARU), a corporation which owned the Rodeway Inn in Baton Rouge, Louisiana. Most of Gerdes' investments in the United States, including the investment in the Rodeway Inn, were found for him by his good friend and non-licensed real estate broker, Aloysius (Al) Klijn. Maynard Cush, an attorney and friend of both Klijn and Gerdes, provided the legal work related to Gerdes' investments.

In 1982, Gerdes decided to sell his ownership in the Rodeway Inn by selling all the ALCARU stock. Gerdes was asking for $1.5 million cash, and to have the new owner assume two wrap-around mortgages. Mr. Klijn found a potential purchaser named Jack Martin. Martin offered to assume the mortgages and pay $1.358 million with a note paying 17.5% interest secured by a mortgage on an Oklahoma gravel pit. Martin told Klijn that the gravel pit was operational and made about $34,000 per month.

While Gerdes was out of the country, Cush, Klijn, and Martin put together the deal selling the ALCARU stock to Martin. Gerdes had two procurations, or powers of attorney, drafted: one authorized Cush, as Gerdes' mandatary, to sell all the ALCARU stock for $1.5 million cash and assumption of the wrap-around mortgages; the second authorized Cush, as Gerdes' mandatary, to sell the ALCARU stock for a secured note in the amount of $1.358 million and assumption of the wrap-around mortgages. 2 The sale occurred on November 29 and 30, 1982, at a time when Gerdes was outside the United States, and Cush signed all documents on Gerdes' behalf. Martin made monthly payments to Cush, Gerdes' escrow agent, but after a few months, the payments ceased.

Neither Cush, Klijn, nor Gerdes became aware of the extent of the problems with the transaction until they learned that Jack Martin was arrested in Oklahoma. Martin had attempted to hire a hit man to kill Gerdes, Cush, Al Klijn, Klijn's wife Carolyn, Cush's secretary Pam Nesbitt, and Larry Butler, an attorney associated with Cush. Martin was subsequently convicted for solicitation for murder. In addition, an investigation ordered by Al Klijn revealed that the "gravel pit" which secured Martin's note was not an operating gravel pit and was essentially worthless. Gerdes eventually foreclosed on the hotel and on the gravel pit.

Gerdes alleges that during a telephone conference about ten days prior to the closing on the sale of the ALCARU stock, he instructed Cush to obtain information on Martin's creditworthiness and to inspect the gravel pit. The telephone conference took place in Cush's office, and was attended by Cush, the Klijns, and Pam Nesbitt. Neither Cush nor Klijn inspected the property. Prior to the sale, however, Martin provided Cush and Klijn with photographs of an operating gravel pit. 3 These pictures were sent to Gerdes in Belgium.

At trial, Gerdes' allegation was supported by his own testimony and the testimony of Pam Nesbitt. The Klijns denied that Cush was ever instructed to inspect the gravel pit. Also, by letter to his insurance company regarding the possibility of a malpractice claim being made by Gerdes, Cush represented that he provided legal services only, that he took no part in the negotiations leading up to the sale, and that he was never asked to obtain an appraisal of or to inspect the pit in Oklahoma. Exhibit P 39.

Maynard Cush died in January, 1985. On May 7, 1985, Gerdes filed suit against the Estate of Cush, Ann Fiske, the administratrix of the estate, Al and Carolyn Klijn, New England Life Insurance Company and Hartford Insurance Company. A subsequent amended complaint dismissed New England Life Insurance Company and Hartford Insurance Company and added National Union Fire Insurance Company. Gerdes brought claims alleging legal malpractice by Cush, and breaches of fiduciary duty by Cush and the Klijns. Gerdes' legal malpractice claims against Cush were dismissed prior to trial on the basis of prescription.

After a non-jury trial on the breach of fiduciary duty and insurance coverage claims, the district court issued an order on July 18, 1988 stating that it would dismiss Gerdes' claims, but withheld entry of final judgment until the court issued its findings of fact and conclusions of law. (Written findings of fact and conclusions of law were never issued.) Upon motion of Gerdes, the court reopened testimony in the case because Carolyn Klijn (now Carolyn Fulton) wished to change her testimony. At trial she testified that Gerdes did not instruct Cush to inspect the gravel pit; her revised testimony was that Gerdes instructed Cush, and Cush agreed to inspect the gravel pit. On July 2, 1990, after Klijn-Fulton testified, the district court orally rendered judgment in favor of all defendants finding that the basis of Gerdes' claims was legal malpractice, 4 and these claims had prescribed. The district court also found that regardless of whether Cush was an attorney or mandatary, there had been no evidence of disloyalty or self-dealing by Cush, thus the action was governed by the one year statute of limitations for negligence actions and had prescribed. Judgment was entered on July 5, 1990 dismissing all of Gerdes' claims.

II.

At issue is whether an action against an attorney who acts pursuant to a mandate is governed by Louisiana's one year prescriptive period for attorney malpractice, the ten year prescriptive period for breach of fiduciary duty, or the one year prescriptive period for delictual actions. Gerdes contends that as part of Cush's mandate, Cush was required to check Martin's creditworthiness and inspect the "gravel pit" in Oklahoma; Gerdes also contends that Cush's failure to do so was a breach of fiduciary duty subject to a ten year prescriptive period. 5 Appellant does not dispute that any claim for legal malpractice against Cush is barred by prescription.

Article 2985 of the Louisiana Civil Code provides:

A mandate, procuration, or letter of attorney is an act by which one person gives power to another to transact for him and in his name, one or several affairs.

Under Louisiana law, the relationship of mandate has become equated with the common law principal-agent relationship. Yiannopoulos, Brokerage, Mandate, and Agency in Louisiana: Civilian Tradition and Modern Practice, 19 LA.L.REV. 777, 795 (1959). A mandatary may be responsible to the principal for damages resulting from non-performance of his duty, unfaithfulness, fault or neglect. 6

An action for breach of fiduciary duty is a personal action with a ten year prescriptive period. La.Civ.Code art. 3499. A fiduciary relationship has been described as follows:

The dominant characteristic of a fiduciary relationship is the confidence reposed by one in the other and [a person] occupying such a relationship can not further his own interests and enjoy the fruits of an advantage taken of such relationship. He must make a full disclosure of all material facts surrounding the transaction that might affect the decision of his principals.

Plaquemines Parish Commission Council v. Delta Development Co., 502 So.2d 1034, 1040 (La.1987) (quoting Anderson v. Thacher, 76 Cal.App.2d 50, 172 P.2d 533, 543 (1946)). The duty of loyalty which results from the position of trust distinguishes the fiduciary relationship. A cause of action for breach of fiduciary duty requires proof of fraud, breach of trust, or an action outside the limits of the fiduciary's authority. Crabtree Investments, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 577 F.Supp. 1466 (M.D.La.1984), aff'd without opinion, Crabtree Investments v. Merrill Lynch, 738 F.2d 434 (5th Cir.1984).

While a mandatary is a fiduciary, it does not necessarily follow that every action against a mandatary is subject to the ten year prescriptive period. For example, because lawyers appear in a representative capacity, a general contract between an attorney and client is often considered a mandate under Louisiana law. Board of Commissioners v. Commission on Ethics for Public Employees, 457 So.2d 802 (La.App. 1st Cir.1984); see Louque v. Dejan, 129 La. 519, 56 So. 427 (1911); Gurley v. New Orleans, 41 La.Ann. 75, 5 So. 659 (1889); Saucier v. Hayes Dairy Products, Inc., 373 So.2d 102, 106-108 (La.1978) (Tate, J., dissenting). The prescriptive period for claims of legal malpractice (i.e. negligence of the attorney/mandatary) is one year. Braud...

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