Admiral Merchants Motor Freight, Inc. v. O'Connor & Hannan

• Citation: 494 N.W.2d 261
• Decision Date: 31 December 1992
• Docket Number: No. C1-92-76,C1-92-76
• Court: Minnesota Supreme Court
• Parties: ADMIRAL MERCHANTS MOTOR FREIGHT, INC., et al., Appellants, v. O'CONNOR & HANNAN, Kirkland & Ellis, Respondents.

Page 261

494 N.W.2d 261

ADMIRAL MERCHANTS MOTOR FREIGHT, INC., et al., Appellants, v. O'CONNOR & HANNAN, Kirkland & Ellis, Respondents.

No. C1-92-76.

Supreme Court of Minnesota.

Dec. 31, 1992.

Rehearing Denied Feb. 11, 1993.

John D. Levine, Peter M. Lancaster, Dorsey & Whitney, Minneapolis, for appellants.

James S. Simonson, John M. Nichols, Gray, Plant, Mooty, Mooty & Bennett, P.A., Minneapolis, for respondent O'Connor & Hannan.

John D. French, Elizabeth L. Taylor, Faegre & Benson, Minneapolis, for respondent Kirkland & Ellis.

Heard, considered and decided by the court en banc.

KEITH, Chief Justice.

This appeal arises directly from a summary judgment granted by the Hennepin County District Court to defendant law firms, O'Connor & Hannan (O & H) and Kirkland & Ellis (K & E), in a legal malpractice action brought by Admiral Merchants Motor Freight, Inc. (Admiral Merchants) and Leamington Co. (Leamington).

We believe there are material facts in dispute as to whether or not O & H's and/or K & E's failure to request arbitration in Admiral Merchants' pension dispute with the Teamsters Central States, Southeast and Southwest Area Pension Fund (Central States Fund), was legal malpractice, and therefore we remand this issue for trial. We affirm the trial court's denial of Admiral Merchants' and Leamington's motion to amend the complaint against K & E to add punitive and treble damages.

Admiral Merchants Motor Freight, Inc. and Leamington Co. were Minnesota corporations owned and operated by Robert E. Short until his death on November 20, 1982. Mr. Short's son, Brian, took over responsibility for these family businesses and others owned by his father after his death. ¹ O & H represented Admiral Merchants and other Short entities for over ten years, until it withdrew as counsel on May 29, 1987. K & E was retained by Admiral Merchants in October 1985.

The dispute arises over Admiral Merchants' and Leamington's liability for certain unpaid pension funds. Under a collective bargaining agreement with the International Brotherhood of Teamsters, Admiral Merchants was responsible for making contributions on behalf of its employees to the Central States Fund. Because of a labor dispute in the summer of 1980, Admiral Merchants had ceased contributing to the Central States Fund. In January 1984, the Central States Fund sent a first demand letter to Admiral Merchants, c/o O & H, assessing Admiral Merchants more than $5.3 million, which represented a withdrawal assessment owing to the Central States Fund. Under the applicable provisions of the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), 29 U.S.C. Secs. 1381-1405 (1988), Admiral Merchants had the right to request an administrative review of this assessment and, then, by demanding arbitration, to resolve any continuing dispute. Admiral Merchants' option to dispute the plan's assessment is a statutory right which is lost if Admiral Merchants fails to request arbitration in a timely manner. O & H represented Admiral Merchants concerning this matter until at least October 1985, when K & E was retained. O & H had previously represented Admiral Merchants in a similar case arising out of a withdrawal liability assessment from another pension plan.

In November 1983, O & H investigated the issue of possible liability of Admiral Merchants and other R.E. Short control group employers (Control Group) and individual shareholders of these corporations for any unfunded liability to the Central States Fund. A copy of O & H's internal memorandum was sent to Brian Short, who responded by letter about his concerns regarding Control Group liability for these assessments.

On May 4, 1984, the Central States Fund notified O & H that the withdrawal liability was affirmed. O & H requested that the Board of Trustees of the Central States Fund reconsider the prior request for review of determination of withdrawal liability. Discussions and negotiations continued over the ensuing months, and O & H was under the impression that the request for reconsideration was under advisement. On October 3, 1985, the Fund sent the second and final demand letter to O & H, this time demanding $5.26 million. On October 11, 1985, the Central States Fund filed a complaint against Admiral Merchants in the federal court of the Northern District of Illinois, Eastern Division, for the withdrawal assessment.

Admiral Merchants retained the firm of K & E to defend this suit based on their expertise in this field of law and their law offices in Illinois. K & E prepared an answer to the complaint, claiming that Admiral Merchants had withdrawn from the Fund prior to September 26, 1980, the effective date of MPPAA, that the court lacked jurisdiction, and that Admiral Merchants owed nothing. No arbitration was requested. In January 1986, the Central States Fund filed a motion to amend its complaint, asking for a default judgment because Admiral Merchants failed to initiate arbitration within 60 days of the October 3, 1985, letter from the Central States Fund reaffirming the assessment. Based upon a magistrate's report, the district court granted summary judgment to the Central States Fund and entered a default judgment against Admiral Merchants on March 27, 1987, in the amount of $8.2 million. On appeal, the decision of the district court was affirmed. Robbins v. Admiral Merchants, 846 F.2d 1054 (7th Cir.1988). In November 1988, after Central States Fund sued the Control Group to enforce the lower court judgment, a settlement agreement was reached, whereby the Control Group agreed to pay approximately $5.75 million to the Central States Fund.

In May 1989, Admiral Merchants and Leamington commenced this lawsuit against O & H and K & E for malpractice, alleging that both defendants failed to take steps to preserve Admiral Merchants' ability to arbitrate the dispute over withdrawal liability to the Fund. Admiral Merchants asserted that failure to request arbitration caused a forfeiture of defenses that would have been available to Admiral Merchants and that this failure resulted in the entry of default judgment. After lengthy discovery, Admiral Merchants and Leamington filed a motion to amend the complaint, asserting punitive damages and treble damages against K & E for knowingly withholding information and misleading Admiral Merchants about the defenses available to the corporation. The court found that Admiral Merchants did not present evidence sufficient to show a prima facie case for punitive and treble damages and therefore denied the motion.

All parties then presented motions for summary judgment. In an order dated October 15, 1991, the district court granted the motions of both O & H and K & E to dismiss the complaint, holding that: (1) Leamington failed to show the existence of an attorney-client relationship with either O & H or K & E; (2) Admiral Merchants and Leamington failed to show negligence of K & E but jury issues remained regarding alleged negligence of O & H; (3) Admiral Merchants and Leamington failed to show proximate cause for any damages on any claims, specifically for any damages sustained by Admiral Merchants; and (4) Admiral Merchants and Leamington failed to show that but for the alleged negligence of defendant law firms, the plaintiffs would have prevailed in the underlying dispute.

In Minnesota, a motion for summary judgment shall be granted only if there is no issue of material fact and a party is entitled to judgment as a matter of law. Minn.R.Civ.P. 56.03. The moving party must show that there are no genuine issues as to any material fact. Sauter v. Sauter, 244 Minn. 482, 484, 70 N.W.2d 351, 353 (1955). The evidence must be viewed in the light most favorable to the non-moving party. Id. at 484-85, 70 N.W.2d at 353; see also Minnesota v. Hennepin County, 441 N.W.2d 106, 109 (Minn.1989). The party opposing the motion must oppose with depositions or affidavits with facts sufficient to raise a jury issue. Lundgren v. Eustermann, 370 N.W.2d 877, 881 (Minn.1985). Any doubt as to the existence of a material fact must be resolved in finding that the fact issue exists. Rathbun v. W.T. Grant Co., 300 Minn. 223, 230, 219 N.W.2d 641, 646 (1974).

In this case, Admiral Merchants and Leamington must factually establish: (1) that an attorney/client relationship existed between Leamington and O & H and K & E, (2) that respondent's acts constituted negligence or breach of contract, (3) that such acts were the proximate cause of Admiral Merchants' and Leamington's damages, and (4) that but for the O & H and K & E conduct, Admiral Merchants would have been successful in the prosecution or defense of the action. Togstad v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686, 692 (Minn.1980).

I.

Whether an attorney-client relationship exists is usually a question of fact dependent upon the communications and circumstances. See Ronnigen v. Hertogs, 294 Minn. 7, 9-10, 199 N.W.2d 420, 421-22 (1972); Christy v. Saliterman, 288 Minn. 144, 151, 179 N.W.2d 288, 294 (1970). There is no dispute that O & H and K & E represented Admiral Merchants. The parties also agree that there was no written contract between Leamington and O & H or K & E. The critical fact issue is whether Leamington produced sufficient evidence to present a jury issue that this corporation did have an attorney-client relationship with these two law firms. The question of whether an attorney-client relationship exists can be determined by evidence of an implied contract or by the use of a tort or third-party beneficiary analysis.

Leamington, in attempting to establish an implied contract, produced evidence that both law firms were aware of the fact that the other Control Group entities besides Admiral Merchants could be liable for the withdrawal liability assessment. Leamington also produced evidence that O & H and K & E knew that Admiral Merchants did not have sufficient assets to pay a judgment in excess of $5 million and that this...