Banker v. Nighswander, Martin & Mitchell, s. 1777

• Decision Date: 11 October 1994
• Docket Number: D,1888,Nos. 1777,s. 1777
• Citation: 37 F.3d 866
• Parties: Richard E. BANKER, Plaintiff-Counter-Defendant-Appellant-Cross-Appellee, v. NIGHSWANDER, MARTIN & MITCHELL, Defendant-Counter-Claimant-Appellee-Cross-Appellant. ockets 93-9292, 93-9338.
• Court: U.S. Court of Appeals — Second Circuit

Page 866

37 F.3d 866

Richard E. BANKER Plaintiff-Counter-Defendant-Appellant-Cross-Appellee, v. NIGHSWANDER, MARTIN & MITCHELL Defendant-Counter-Claimant-Appellee-Cross-Appellant.

Nos. 1777, 1888, Dockets 93-9292, 93-9338.

United States Court of Appeals Second Circuit.

Argued June 13, 1994.

Decided Oct. 11, 1994.

W.E. Whittington IV, Norwich, VT (Douglas S. Moore, Brooks McNally Whittington Platto & Vitt, of counsel), for plaintiff-appellant-cross-appellee Richard E. Banker.

Charles J. Dunn, Manchester, NH (Wadleigh, Starr, Peters, Dunn & Chiesa, of counsel), for defendant-appellee-cross-appellant Nighswander, Martin & Mitchell.

Before: McLAUGHLIN, JACOBS, Circuit Judges, and WEINSTEIN, Senior District Judge. ^*

JACOBS, Circuit Judge:

This case of legal malpractice arises from the retention of the New Hampshire law firm of Nighswander, Martin & Mitchell ("Nighswander") to advise and represent Richard E. Banker in his effort to collect a debt evidenced by a promissory note. In the underlying collection case, the United States District Court for the District of New Hampshire granted summary judgment to the debtors, leaving Banker unable to collect on the note. Banker subsequently brought this lawsuit in the United States District Court for the District of Vermont, alleging that Nighswander's advice concerning collection on the note amounted to legal malpractice, and demanding $350,000 in damages. After a four-day bench trial, the Vermont district court (Billings, J.) found that Nighswander had committed malpractice. The district court further found, however, that Banker failed to mitigate his damages by not prosecuting an appeal of the adverse judgment in the underlying collection suit. The district court therefore declined to award as damages the full amount due on the note, and instead entered judgment for $50,000.

Banker appeals the district court's judgment fixing the damage award at $50,000, a figure that apparently reflects the court's finding that Banker failed to mitigate damages; and the court's refusal to award Banker attorney's fees incurred by him in the malpractice action. Nighswander cross-appeals the district court's liability finding.

We find no error in the district court's finding of legal malpractice or the refusal to award attorney's fees. We vacate the judgment, however, and remand for findings concerning causation and for recalculation of damages in a manner consistent with this opinion.

Background

Banker sold his 100 percent ownership of Quality Mechanical, Inc. to Upper Valley Refrigeration Co., Inc. ("Upper Valley"), in two stock sale transactions: 50 percent in July 1986, and the remaining 50 percent in December 1987. Upper Valley was a New Hampshire corporation solely owned by Carol and Wilton Buskey. At the closing of the second stock transaction, Banker accepted a promissory note in the principal amount of $260,000, executed by Upper Valley and Quality Mechanical, as well as by the Buskeys individually. This promissory note was secured by the stock of Upper Valley and Quality Mechanical, the shares of which were placed in escrow with Banker's attorney, Albert J. Cirone.

When payments on the note ceased after April 1989, the principal amount due on default was $229,264.38. Banker's lawyer, Mr. Cirone, was then of counsel to the Nighswander firm. Banker retained the firm in May 1989, and Mr. Cirone sent a letter in June demanding payment from the makers of the note. That same month, Banker filed suit in New Hampshire state court to collect on the note and (more immediately) to attach the property of the Buskeys and the two corporations. In July 1989, the Buskeys removed the suit to federal court in New Hampshire.

Banker soon began to hear news suggesting that the debtors might be in financial straits: the corporations were not paying their suppliers, and the Buskeys were in the midst of an embittered divorce. Acting on the advice of his attorneys at Nighswander, an alarmed Banker repossessed the stock of Upper Valley and Quality Mechanical on October 19, 1989. For several months thereafter, the parties conducted settlement negotiations that resulted in an undertaking by the Buskeys to pay a sum certain on January 2, 1990. That date came and went without payment. On January 15, 1990, Banker voted himself president and sole director of both corporations. According to the Nighswander brief, the entire purpose of these steps was to secure accurate financial information about the debtors.

Later that month, Upper Valley's bank swept the accounts of Upper Valley, seizing $81,000, and prompting Banker to file a petition for reorganization of Upper Valley under Chapter 11 of the United States Bankruptcy Code. In March 1990, the corporation was forced into liquidation under Chapter 7 of the Bankruptcy Code.

In July 1990, Wilton Buskey filed a supplemental affirmative defense in the note collection case, alleging that the exercise of Banker's right to take possession of the escrowed stock and his exercise of control over the two corporations constituted an involuntary strict foreclosure under Article 9, Section 505(2) of the Uniform Commercial Code. See N.H.Rev.St.Ann. Sec. 382-A:9-505(2). The Buskeys then filed a motion for summary judgment on that issue, arguing that Banker thereby relinquished any remedy against them or their personal assets. Summary judgment in favor of the Buskeys was granted on January 10, 1991. Banker v. Upper Valley Refrigeration, 771 F.Supp. 6 (D.N.H.1991).

Educated by the summary judgment opinion, Banker retained new counsel to pursue a claim that Nighswander committed malpractice in failing to advise Banker about the risks of repossessing the stock. Banker's new counsel, the firm of Teachout, Brooks & McNally (now Brooks McNally Whittington Platto & Vitt), notified the Nighswander firm of this malpractice claim on January 20, 1992, and at the same time conveyed Banker's direction that Nighswander pursue an appeal of the New Hampshire decision on Banker's behalf. Nighswander, however, decided to cut its ties with its unhappy client, and filed a motion in the New Hampshire federal court to withdraw as counsel. At the hearing on the motion, Banker opposed Nighswander's withdrawal. In granting the motion, the New Hampshire court expressed its view that Banker's new counsel could represent Banker in an appeal to the First Circuit.

On June 22, 1992, Banker filed his complaint in this lawsuit in Vermont federal court. On November 15, 1993, Judge Billings entered his decision and order, finding that Nighswander committed malpractice by negligently rendering advice. Specifically, the court found that Nighswander was negligent in researching collection alternatives, and in failing to learn--and tell its client--the risks of involuntary strict foreclosure. However, the court also held that Banker failed to mitigate his damages by failing to appeal the New Hampshire decision. Apparently for that reason, the court awarded Banker $50,000 in damages rather than the considerably larger sum due on the note. This appeal followed.

Discussion

Standard of Review

Following a bench trial, an appellate court may only set aside those findings of fact that are clearly erroneous, with due regard given to the district court's credibility determinations. Fed.R.Civ.P. 52(a); Anderson v. City of Bessemer, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). Under this standard, we will not upset a factual finding unless we are "left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). "Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." United States v. $10,000 in United States Currency, 780 F.2d 213, 220 (2d Cir.1986) (citing United States v. Yellow Cab Co., 338 U.S. 338, 342, 70 S.Ct. 177, 179, 94 L.Ed. 150 (1949)). However, the district court's application of those facts to draw conclusions of law, including a finding of liability, is subject to de novo review. A/S Dampskibsselskabet Torm v. Beaumont Oil Ltd., 927 F.2d 713, 716 (2d Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 183, 116 L.Ed.2d 144 (1991). This standard is equally applicable to the so-called mixed question of law and fact. Bose Corp. v. Consumers Union, 466 U.S. 485, 501, 104 S.Ct. 1949, 1959, 80 L.Ed.2d 502 (1984).

Malpractice Liability

We first consider the potentially dispositive issue presented in the cross-appeal. Nighswander argues that the district court's finding of liability for legal malpractice is without support in the evidence. We disagree.

In October 1989, Banker took possession of the stock certificates that had been stored in Cirone's safe and recorded his name on them, thereby becoming the sole shareholder of the corporations. On January 15, 1990, after an unsuccessful attempt to settle the dispute, Banker removed the Buskeys as directors and appointed himself director, president, and treasurer. He then assumed day-to-day control of the corporations, eventually taking Upper Valley (the "parent" corporation) into a liquidation proceeding under chapter 7 of the Bankruptcy Code. 11 U.S.C. Secs. 701-766. In doing all this, Banker acted on the advice of Nighswander.

The New Hampshire district court held that Banker's conduct in taking possession of the stock and exercising control of the corporations constituted an "involuntary strict foreclosure" under section 9-505 of the U.C.C. Banker v. Upper Valley Refrigeration Co., 771 F.Supp. 6, 11 (D.N.H.1991). That section of the U.C.C. provides that a creditor may "retain the collateral in satisfaction of his obligation." N.H.Rev.Stat.Ann. Sec. 382-A:9-505. In its opinion, the New Hampshire district court relied upon a First Circuit case that was issued after Nighswander gave Banker the advice now in question. See Lamp Fair, Inc. v. Perez-Ortiz...