Alexander v. Robertson

• Decision Date: 14 August 1989
• Docket Number: 88-15170,Nos. 88-1855,s. 88-1855
• Citation: 882 F.2d 421
• Parties: Paul ALEXANDER; Frederik Poelman, Plaintiffs, v. Gerald K. ROBERTSON, Defendant-cross-claimant-Appellant, v. PROTECTIVE NATIONAL INSURANCE COMPANY OF OMAHA; David Fraser, Inc., Cross-claim-defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 421

882 F.2d 421

14 Fed.R.Serv.3d 641

Paul ALEXANDER; Frederik Poelman, Plaintiffs, v. Gerald K. ROBERTSON, Defendant-cross-claimant-Appellant, v. PROTECTIVE NATIONAL INSURANCE COMPANY OF OMAHA; David

Fraser, Inc., Cross-claim-defendants-Appellees.

Nos. 88-1855, 88-15170.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 16, 1989.

Decided Aug. 14, 1989.

Brian W. Walsh, Bishop, Barry, Howe, Haney & Ryder, San Francisco, Cal., for defendant-cross-claimant-appellant.

F. Conger Fawcett, Graham & James, San Francisco, Cal., for cross-claim-defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before POOLE, BOOCHEVER and WIGGINS, Circuit Judges.

WIGGINS, Circuit Judge:

This case involves two consolidated appeals involving Appellant, Gerry K. Robertson. In case No. 88-1855 Robertson appeals from a judgment denying him relief on his cross-claims against Appellees David Fraser, Inc. ("Fraser") and Protective National Insurance Company of Omaha ("Protective") for indemnification of Robertson's liability to Paul Alexander and Frederik Poelman. In case No. 88-15170 Robertson appeals from an order denying his Rule 60(b) motion for relief from that adverse judgment. The district court had jurisdiction of this case under 28 U.S.C. Sec. 1332(a)(2) (1982). We have jurisdiction under 28 U.S.C. Sec. 1291 (1982). We affirm the district court's judgments in both appeals.

I

Alexander and Poelman, both residents of the Commonwealth of New Zealand, filed a complaint in federal district court in January 1987 against Robertson, Fraser, and Protective to collect a deficiency judgment arising out of the sale, repossession, and subsequent resale of the vessel, Sunquest II. Robertson answered the complaint, filed a counter-claim, and also cross- claimed against Fraser and Protective. The district court found that Alexander and Poelman had brought the Sunquest II to the United States and arranged through Fraser to find a buyer. Joseph Rinehart, an independent sales agent for Fraser, located Robertson who agreed to buy the vessel on the following terms: $65,000 paid upon delivery; an additional $5,000 due 90 days after delivery; and the remaining balance of $205,000 due one year after delivery. The $210,000 that was not paid immediately was to be financed at a rate of 15% per annum and to be paid in monthly installments to Rinehart who, in turn, agreed to transfer the installments to Alexander and Poelman in New Zealand.

Robertson failed to pay Rinehart $10,119.50 of the interest installments that became due and, in addition, defaulted on the $205,000 principal payment that came due on June 14, 1986. Alexander returned to the United States, repossessed the vessel, and resold it for a net recovery of roughly $183,000. Around the same time Alexander learned that Rinehart had kept for himself approximately $11,550 of the $25,818 in interest payments actually paid by Robertson. He informed Fraser of the possible impropriety. Rinehart was subsequently terminated as Fraser's sales agent, not because of what Alexander had discovered, but because Fraser learned that Rinehart was not a licensed broker. Alexander and Rinehart subsequently reached an agreement whereby Rinehart returned the embezzled funds plus interest and attorney fees.

Based on these facts the district court ruled that Alexander and Poelman were entitled to a deficiency judgment against Robertson in the amount of $46,442.06 plus interest and attorney fees. The district court further ruled that the amount of the judgment was to be above and beyond the $10,000 security bond tendered by Protective on behalf of its insured, Fraser, as a settlement of any claims Alexander and Poelman would have against them for the malfeasance of Rinehart. Finally, the district court ruled that Fraser and Protective were neither liable to Robertson for Rinehart's misconduct nor did they have any obligation to indemnify Robertson for his liability to Alexander and Poelman. Robertson then filed a timely notice of appeal in case No. 88-1855.

Soon thereafter Robertson learned that David Warren, the attorney who had represented Fraser and Protective, had not been licensed to practice law in the State of California at the time of the trial. Robertson also learned that Warren had failed to become a member of the bar of the Federal District Court for the Northern District of California and to notify the district court, as required by Local Rule 110-1, that he no longer was a member of the California bar. With this undisputed information in hand, Robertson returned to the district court and filed a Rule 60(b) motion for relief from the judgment. The Court of Appeals granted a limited remand in case No. 88-1855 for a determination of Robertson's motion. Without downplaying the seriousness of Warren's misconduct, the district court entered an order denying the motion on the ground that voiding the judgment would have been an inappropriate sanction under the circumstances. Robertson then filed a second timely notice of appeal in case No. 88-15170. The appeals in both cases were consolidated for review. We address first Robertson's arguments that the district court erred in denying him relief on his cross-claims against Fraser and Protective and then we consider the denial of his Rule 60(b) motion for relief from that judgment.

II

Robertson's appeal in case No. 88-1855 involves the district court's ruling that neither Fraser nor Protective are liable to Robertson for the damages Robertson allegedly sustained from Rinehart's misappropriation of the installment payments. Robertson asserts several theories of liability against Fraser: (1) Fraser, through Rinehart, acted as an escrow agent for the sale of the Sunquest II, and as such had a fiduciary relationship with both the buyer and seller; Rinehart's conversion of the installment payments breached that fiduciary duty, and therefore Fraser is liable to Robertson for the losses he sustained; (2) Rinehart was not a licensed broker, as required by California law, and therefore Fraser is obligated to indemnify Robertson for any losses sustained because of his conduct; and (3) Fraser's failure to terminate Rinehart immediately after learning of his misappropriation of the installment payments constituted ratification of his acts for which Fraser was directly liable. Robertson asserts that if Fraser is held liable Protective would then be indirectly liable on the $10,000 security bond. Although unclear, these contentions apparently challenge the district court's findings of fact and are, therefore, reviewed for clear error. Fed.R.Civ.P. 52(a).

The validity of each of these contentions depends on a single fact that simply is not present: Robertson did not suffer any compensable damages due to Rinehart's misappropriation of the installment payments. It is undisputed that Rinehart agreed to return the embezzled installment payments plus interest and attorney fees to Alexander and Poelman. Robertson was thus never even thought responsible for the interest payments that he had made to Rinehart but which Rinehart had never sent to Alexander and Poelman. Indeed, until this case went to trial Robertson apparently disavowed any responsibility for these diverted installment payments. He apparently assumed, as did Alexander and Poelman, that Rinehart was Alexander and Poelman's agent for purposes of transmitting the installment payments. Robertson has thus failed to show, as a matter of fact, that he suffered damages because of Rinehart's alleged breach of fiduciary duty. ¹ Each of Robertson's theories of liability is defective for this reason.

III

Robertson's appeal in case No. 88-15170 involves Warren's unauthorized practice of law. Neither party questions the essential facts: (1) Warren resigned from the California bar before trial began; (2) he had never applied for membership in the bar of the Federal District Court for the Northern District of California; (3) he violated Local Rule 110-1 by not informing the district court of his status in the state bar; and (4) none of the parties knew of Warren's misconduct until after the trial ended. The question that we must consider is whether the district court abused its discretion in not vacating the judgment based on these facts. See Bank of Am. Nat'l Trust & Savings Assoc. v. Mamakos, 509 F.2d 1217, 1219 (9th Cir.1975) (applying abuse of discretion standard of review to motion brought under rule 60(b)(1)).

Robertson cites to several dated California authorities for the proposition that a judgment will be set aside on appeal, or even by collateral attack, if it is later discovered that either of the party's representatives was not a licensed attorney. See, e.g., City of Downey v. Johnson, 263 Cal.App.2d 775, 69 Cal.Rptr. 830 (1968); People ex rel. Dep't of Public Works v. Malone, 232 Cal.App.2d 531, 42 Cal.Rptr. 888 (1965); see also 7 C.J.S. Atty & Client Sec. 31, at 869 (1980); Recent Decision, 29 Cal.L.Rev. 237, 238 (1941) (describing these authorities as holding "that a proceeding participated in by a person as an attorney who was not authorized to practice law in the state is error and will be reversed upon appeal"). Fraser and Protective, on the other hand, rely on a more recent California decision holding that this type of sanction is appropriate only where the party whose interest the unlicensed attorney represented fails to succeed in the prior proceedings. See Gomes v. Roney, 88 Cal.App.3d 274, 151 Cal.Rptr. 756 (1979); accord Recent Decision, supra, at 240. Neither party refers to any federal cases decided under Rule 60(b) that would control this precise issue. To our knowledge, then, the question is one of first impression in the federal courts.

Robertson relies on the following language in Rule 60(b) as providing support for his...