Brown v. Slenker

• Decision Date: 03 August 2000
• Docket Number: No. 99-30314,99-30314
• Citation: 220 F.3d 411
• Parties: (5th Cir. 2000) JAMES H. BROWN, Commissioner of Insurance for the State of Louisiana as Liquidator of Physician's National Risk Retention Group, Inc., Plaintiff-Counter Defendant-Appellee - Appellant, v. NORMAN F. SLENKER; SLENKER, BRANDT, JENNINGS, & JOHNSTON, Defendants- Counter Claimants-Appellants-Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 411

220 F.3d 411 (5th Cir. 2000)

JAMES H. BROWN, Commissioner of Insurance for the State of Louisiana as Liquidator of Physician's National Risk Retention Group, Inc., Plaintiff-Counter Defendant-Appellee - Appellant, v. NORMAN F. SLENKER; SLENKER, BRANDT, JENNINGS, & JOHNSTON, Defendants- Counter Claimants-Appellants-Appellees.

No. 99-30314

UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

August 3, 2000

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Appeals from the United States District Court For the Middle District of Louisiana.

Before REAVLEY, SMITH, and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Norman Slenker and Slenker, Brandt, Jennings, and Johnston ("SBJJ") (collectively, "the Defendants") appeal from a Rule 50(a) judgment entered in favor of James Brown ("the Commissioner"). We affirm in part, vacate in part, and remand for further proceedings.

I

Physicians National Risk Retention Group ("PNRRG") was a risk retention group organized pursuant to Louisiana law. While not a traditional insurance company, PNRRG insured medical doctors in numerous states.

PNRRG insured Dr. David Davoudlarian. Davoudlarian was sued for medical malpractice in a Virginia state court by Karlissa Krombein. Under Davoudlarian's policy, PNRRG had a contractual obligation to defend him. A representative of PNRRG in Georgia contacted Slenker in Virginia. Slenker and his firm, SBJJ, were retained to represent Davoudlarian in the Krombein suit.

In 1990, the first trial in the Krombein suit resulted in a $10,000 verdict against Davoudlarian. The trial court set the verdict aside as to damages, but not as to liability. Thereafter, Krombein made a settlement offer for Davoudlarian's $500,000 policy limit. The Virginia statutory liability cap on medical malpractice damages was $1,000,000. PNRRG realized that a retrial risked creating personal liability for Davoudlarian. However, it felt that the court's decision was a "miscarriage of justice" and was confident that an appeal would either restore the $10,000 verdict or lead to a retrial on all issues. Therefore, in a letter sent by Director of Claims Bart Meehan, PNRRG agreed to pay any damages Davoudlarian might ultimately encounter, up to the $1,000,000 limit.¹

The damages-only retrial in the Krombein suit resulted in a verdict of $1.5 million, which the trial court reduced to the $1 million cap. Slenker began the appeals process. He advised PNRRG of the necessary amount of the appeal bond and of the procedure to follow in perfecting the appeal. PNRRG sent Slenker a cashier's check in the amount of $1.175 million, made out to the clerk of the Virginia court, to be posted with the court. PNRRG stated that it intended to substitute an appeal bond for the check, but this was never done.² An appeal was perfected with the Virginia Supreme Court.

During the pendency of the appeal, PNRRG was declared insolvent by the Louisiana Nineteenth District Court in East Baton Rouge Parish. Pursuant to Louisiana law, the Commissioner was appointed the liquidator of PNRRG. The Commissioner hired Louisiana attorneys, including outside lawyers Ossie Brown and Rolfe McCollister, to help coordinate the liquidation. Ossie Brown sent Slenker and SBJJ a letter requesting help in having the Louisiana liquidation and stay orders domesticated in Virginia, but there was no response. SBJJ partner John Brandt did file a motion to stay proceedings in another Virginia malpractice case involving a PNRRG insured, but there was no such motion in the Krombein suit.

Ossie Brown also sent Slenker a letter (the "Letter") requesting certain information. The Letter was a form sent to all attorneys nationwide representing PNRRG insureds. SBJJ was to retype the Letter on its own stationary, sign it, and return it to Ossie Brown, along with certain requested information, in order to receive payment for fees and expenses incurred in representing PNRRG insureds. The first sentence of the Letter stated: "By means of this letter, we wish to advise you that we will represent you in those matters pending in this jurisdiction in which Physicians National Risk Retention Group in liquidation has been made a party defendant." Unlike Louisiana, but like nearly all other states, Virginia is not a direct action state: the insurer is not a party to lawsuits filed against its insureds. Therefore, neither the Commissioner nor PNRRG was ever a party to a Virginia lawsuit defended by SBJJ. When Slenker saw the Letter, in April 1992, he wrote on the cover page that he did not understand what the Letter referred to, that he did not represent the Commissioner, and therefore that he saw no reason to respond. Slenker did not communicate these sentiments to the Commissioner or his attorneys.

In a May 1992 letter to the Commissioner, Slenker noted that SBJJ "has for consideration a request . . . that we sign a contract with you concerning representation" of physicians insured by PNRRG. Slenker complained that SBJJ had not been paid for its existing work on behalf of those physicians, despite repeated assurances to the contrary from Ossie Brown and others. Slenker expressed displeasure at the fact that SBJJ was now required to "sign the contract" in order to receive any payment. Slenker concluded that it would "enhance the prospects of a contractual relationship" if the Commissioner promptly paid all submitted invoices. As it stood, Slenker could not recommend that SBJJ sign the Letter.

On June 5, 1992, the Supreme Court of Virginia reversed and vacated the trial court's judgment in Krombein v. Davoudlarian. The case was remanded for a new trial on all issues. Krombein's counsel, Brian Shevlin, soon sent Slenker a letter expressing a belief that it was in both Krombein's and Davoudlarian's interests to keep the bond in place. Slenker did not inform the Commissioner or his attorneys of that correspondence. At the same time, the Commissioner and his attorneys knew that the $1.175 million was in the Virginia court by November 1991, but took no steps to assert or protect any interest the Commissioner believed he had in the money.

On July 21, 1992, SBJJ returned the retyped Letter to the Commissioner. The Letter was signed by John Brandt for SBJJ. In the Letter, SBJJ agreed that all invoices and receipts had to be submitted monthly for approval by the Commissioner's office and by the Louisiana court in charge of the liquidation. The terms of the Letter were retroactive to the date of the liquidation. Brandt's cover letter noted that the "letter of intent" was "regarding our representation of certain Physician's National insureds." It added that SBJJ looked forward to immediate payment of its outstanding expenses and fees.

On October 15, 1992, Slenker talked to McCollister, who was in charge of coordinating the liquidation in states east of the Mississippi River. Slenker and McCollister discussed the $1.175 million bond. McCollister stated that the Commissioner wanted the money returned to Louisiana. Slenker told McCollister that Davoudlarian would object to that, and that Davoudlarian wanted the case resolved. Slenker informed McCollister that a new trial was set for May 1993 and that Krombein's settlement demand was $800,000. Beyond that, the content of the conversation is disputed. Slenker claims that he informed McCollister that he represented only Davoudlarian and that he could never participate in any effort to remove the money because it would be contrary to his client's interest. McCollister claims that Slenker said that he could not involve himself in a struggle between the interests of Davoudlarian and the Commissioner, and had the impression that Slenker would look into getting the bond released and get back to him. Neither the Commissioner nor any of his attorneys took any action to seek a turnover of the funds.

By November 5, 1992, Slenker and Shevlin had agreed to settle the Krombein lawsuit for $700,000. Slenker did not inform the Commissioner of this agreement or seek the Commissioner's approval, even though Davoudlarian's original insurance policy granted PNRRG the right to approve any litigation settlement. On November 5, a hearing was held in the Virginia trial court on Krombein's motion to release the $700,000 from the money held by the court to fund the settlement. Slenker did not join the motion but, stating that he was required to follow Davoudlarian's wishes, did not oppose it. Slenker never informed the Commissioner of the hearing, although he did inform the court that PNRRG was in liquidation. The court entered an order releasing the $700,000.

Two years later, the Commissioner filed the instant lawsuit against Slenker and SBJJ in Louisiana state court. While the complaint is not entirely clear, the Commissioner appeared to allege that Slenker's conduct constituted: 1) attorney malpractice; 2) a breach of the fiduciary duty of loyalty the Defendants owed the Commissioner as a client; 3) a breach of the fiduciary duty Slenker assumed by receiving the $1.175 million, in that Slenker converted or alienated the $700,000 to effect the unauthorized settlement; 4) a breach of contract, as the Letter created a contractual relationship in which the Defendants agreed to represent the Commissioner in the Krombein matter. He claimed $700,000 in damages. Later, over the Defendants' objections, the Commissioner was allowed to amend his complaint to include a fraud claim, alleged solely for the purpose of defeating the Defendants' prescription claim under Louisiana law. The Defendants subsequently added counterclaims for fraud and constructive fraud. The Defendants removed the case to the Middle District of Louisiana, then filed a motion to dismiss for lack of personal jurisdiction or, alternately, to transfer the case to the Eastern District of Virginia. The motion was denied. The Defendants also moved for summary judgment at the close of the discovery period, claiming that the...