Clarendon Ltd. v. Foster

• Decision Date: 02 September 1993
• Docket Number: No. 92-5626,92-5626
• Citation: 7 F.3d 232
• Parties: NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. CLARENDON LTD., et al., Plaintiff-Appellee, v. Eddie W. FOSTER, et al., Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 232

7 F.3d 232

NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit.

CLARENDON LTD., et al., Plaintiff-Appellee, v. Eddie W. FOSTER, et al., Defendant-Appellant.

No. 92-5626.

United States Court of Appeals, Sixth Circuit.

Sept. 2, 1993.

Before BOGGS and BATCHELDER, Circuit Judges and MANOS, District Judge. ^*

PER CURIAM.

On February 15, 1991, Clarendon Ltd., and Clarendon Coal, Inc., plaintiffs, filed the above-captioned action against Eddie W. Foster, Roger L. Ball, Sr., and Coal River Management, Inc., defendants, alleging fraudulent misrepresentation, breach of contract and breach of guaranty. The cause of action against Ball was for fraudulent misrepresentations concerning the financial condition of Lynk Coal Company, owned by Foster and managed by Ball and his company, Coal River Management, Inc. The plaintiffs alleged that Ball made the misrepresentations in connection with a loan of $199,945.51 they made to Lynk Coal.

Jurisdiction in the District Court was predicated upon 28 U.S.C. § 1332. ¹ This court has jurisdiction pursuant to 28 U.S.C. § 1291. ²

For the following reasons we affirm the district court in part, and remand in part.

I.

Eddie Foster, defendant, operated Lynk Coal Company which was experiencing some financial problems in early 1990. Foster, on behalf of Lynk, sought financial help from Clarendon Ltd. and Clarendon Coal Company, plaintiffs. He told them that although he had extensive experience in mining, he had little experience in business and financial matters and that, in part, was the reason for Lynk's financial problems. However, he told them he would hire someone with experience to handle and manage the business and financial operations. Sometime prior to May, 1990, he hired Roger Ball and his company Coal River Management.

On May 4, 1990, Ball told plaintiffs that Lynk was in immediate need of $40,000 for spare parts and back wages. Clarendon Coal loaned the money to Lynk and sent it to Coal River.

In June, 1990, the plaintiffs and Ball and Foster met to review the various loan documents which were executed on June 21, 1990. One of the documents was a promissory note in the amount of nearly $200,000, which included the loan for spare parts and back wages.

At the closing Foster and Ball represented that, inter alia, 1.) Lynk was solvent, 2.) there had been no material adverse change in Lynk's financial condition since March 19, 1990, 3.) there was "no litigation, legal proceeding or other action of any nature pending against Lynk that might materially affect its ability to carry on business", and 4.) "no material misstatements or omissions had been made by Lynk to the plaintiffs in connection with the agreements."

Known to Ball and Foster before executing the note, but not to Clarendon, Lynk, on June 5, 1990, filed a voluntary petition in bankruptcy under Chapter 11 of the United States Bankruptcy Code. Both Ball and Foster prepared the bankruptcy documents. They did not inform plaintiffs of this. In September, 1990, plaintiffs discovered the bankruptcy filing.

On February 15, 1991, the plaintiffs initiated the above captioned action charging that they were defrauded by the misrepresentations and omissions of Ball and Foster and, in reliance on them, made the loan to Lynk. They further charge that the defendants breached their contract and guaranty because none of the obligations under the promissory note has been repaid.

Following the suit, Ball retained Morton Taubman, who had been his attorney in different legal matters for over ten years. Taubman had recently joined the Washington, D.C. firm of Dunnells, Duvall & Porter ("Dunnells, Duvall") as "of counsel." On Taubman's recommendation, Ball retained Dunnells, Duvall. It in turn retained the Nashville, Tennessee firm of Boult, Cummings, Conners & Berry ("Boult, Cummings") as local counsel and Ball agreed to pay a $25,000 retainer to Dunnells, Duvall and any costs incurred by both firms.

On March 12, 1991, Ball issued two checks totalling $40,000. One, in the amount of $20,000, was payable to Morton Taubman and the other, also in the amount of $20,000, was payable to Dunnells, Duvall. Taubman endorsed both checks and deposited them in his wife's account.

On March 22, 1991, Ball issued a check to Dunnells, Duvall in the amount of $25,000. Based on this payment, Dunnells, Duvall proceeded to perform legal services and incur costs.

On April 15, 1991, Dunnells, Duvall and Boult, Cummings moved, on behalf of Ball, to dismiss or transfer venue.

On May 7, 1991, Ball was notified that his $25,000 retainer check to Dunnells, Duvall had not been honored because of insufficient funds. Ball promised to send another, but did not.

On May 23, 1991, Dunnells, Duvall wrote Ball and informed him that it and Boult, Cummings would move to withdraw from the case unless Ball paid its retainer and the costs incurred.

On June 14, 1991, both firms moved to withdraw and a copy of the motion was mailed to Ball. Ball did not oppose the motion.

On June 26, 1991, the court granted the motion to withdraw and a copy of its order was sent to Ball.

On July 12, 1991, Taubman wrote Ball that he was leaving Dunnells, Duvall. In his letter, he stated that he would represent him but that it was necessary for Ball to sign the form enclosed giving Taubman the right to get Ball's files from Dunnells, Duvall. Ball signed and mailed it to Taubman.

On July 19, 1991, Dunnells, Duvall wrote to Ball stating:

Re: Clarendon Ltd. v. Eddie W. Foster, et al.

The Court has permitted us to withdraw from the litigation. You are now not represented in that case. We urge you to take the necessary steps to get new counsel so that your rights in the litigation will be protected.

On July 26, 1991, Boult, Cummings also wrote Ball that its motion to withdraw had been granted and that the Order further indicated that on August 1, 1991, a hearing was set on the motion to dismiss before Magistrate Judge Sandidge, who was assigned to hear all pre-trial matters.

The letter stated:

It is important that you immediately inform your new attorney of the enclosed matters if you have one, or to advise the Court of your intent to represent your own interests in this matter by calling the Clerk of the Court as soon as possible. Failure to do so may constitute a default on your part in this action.

On July 26, 1991, Boult, Cummings filed a Notice of Remittance with the court indicating that they had informed Ball of the Order and the August 1, 1991, hearing date. On August 1, 1991, no one appeared on Ball's behalf.

On August 8, 1991, Dunnells, Duvall sued Ball for fees. The case was captioned Stephen W. Porter, et al. v. Roger Lee Ball, ("the Dunnells, Duvall" litigation). ³

On September 10, 1991, the Magistrate Judge recommended that Dunnells, Duvall's motion on Ball's behalf to dismiss or transfer venue be denied for nonappearance. On October 10, 1991, the District Court adopted the Report and Recommendation of the Magistrate Judge and ordered denial of the motion. A copy of the Report and Recommendation and the District Court's Order was sent to Ball.

On September 17, 1991, the Report and Recommendation of the Magistrate Judge mailed by the court to defendant Coal River Management, Inc., Ball's company, was returned by the Postal Service marked "refused."

On November 13, 1991, the plaintiffs filed for an entry of default.

On November 14, 1991, Dunnells, Duvall contacted Ball to inform him that members of the firm had met with Taubman in relation to the Dunnells, Duvall litigation and Taubman told them that the $40,000 he got from Ball was for payment of a prior debt and not for attorney fees. The firm members stated that they needed more information from Ball before they could consider his proposal to dismiss their case.

In this letter they again strongly urged Ball to retain counsel for the Clarendon litigation and stated they would cooperate fully. They told him that his files were still in their office and available to him at any time. They enclosed a copy of the Magistrate Judge's Report and Recommendation and the District Court's Order denying the Motion to Dismiss.

The letter stated further:

I must reiterate our prior advice to you to immediately obtain counsel to represent your interests in the Clarendon litigation. We would expect that your new counsel would seek to have the motion to dismiss and to transfer venue considered on the merits.

Ball did not respond to this letter and on December 18, 1991, Dunnells, Duvall wrote to Ball again stating:

Re: Clarendon Ltd. v. Eddie W. Foster, et al.

In connection with our effort to clarify the basic facts around this billing situation, we repeat our requests for information, which were outlined in our statement of November 18.

In addition, we reiterate our advice to you to retain counsel to represent your interests in the Clarendon litigation in Tennessee. You are unrepresented in that litigation and risk a default being entered against you unless you make arrangements to appear.

On December 27, 1991, default was entered by the Clerk of Court.

On December 28, 1991, Ball retained Bernard R. Corbett as his attorney in the fee litigation Dunnells, Duvall initiated.

On January 10, 1992, the plaintiffs filed a Motion for Default Judgment. Ball received a notice of the default and, on or before January 15, 1992, the motion for default judgment.

On January 22, 1992, the court issued a Show Cause Order and set the hearing date on the motion for default judgment for January 31, 1992. On the same day Dunnells, Duvall sent Ball another letter repeating its admonition and concern that Ball retain counsel for the Clarendon litigation and noting that it had "advised your new counsel [for the Dunnells, Duvall litigation] that...