Copeland v. Wasserstein, Perella & Co., Inc.

Decision Date04 January 2002
Docket NumberNo. 00-31292.,00-31292.
Citation278 F.3d 472
PartiesAlvin C. COPELAND, Plaintiff-Appellant-Cross-Appellee, v. WASSERSTEIN, PERELLA & CO., INC., and Charles G. Ward, III, Defendants-Appellees-Cross-Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

Benjamin R. Slater, III (argued), A. Elise Brown, Slater Law Firm, New Orleans, LA, for Copeland.

Ronald S. Rolfe (argued), Cravath, Swaine & Moore, New York City, Duris Lee Holmes, Robert Emmett Kerrigan, Jr., Deutsch, Kerrigan & Stiles, New Orleans, LA, for Wasserstein, Perrella & Co., Inc. and Ward.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before GARWOOD, WIENER, and CLEMENT, Circuit Judges.

WIENER, Circuit Judge:

This Louisiana diversity case arises out of a food-business merger gone sour. Plaintiff-Appellant/Cross-Appellee Al Copeland owned the controlling interest in companies that sought to acquire a chain of restaurants and retained Defendant-Appellee/Cross-Appellant Wasserstein, Perella, & Co. ("Wasserstein") to provide financial advice regarding the deal. After the corporation that resulted from the merger was forced into bankruptcy by creditors, Copeland sued his investment banker, settled that lawsuit, and then sued Wasserstein and one of its executive employees, Defendant-Appellee/Cross-Appellant Charles Ward. Copeland appeals from the district court's dismissal of his claims against Wasserstein and Ward, and they cross-appeal from the district court's denial of their motion for sanctions. We affirm the district court's dismissal of Copeland's claims; we reverse the court's denial of Wasserstein and Ward's motion for sanctions and remand for further proceedings consistent with this opinion.

I. FACTS AND PROCEEDINGS

In June of 1988, a corporation controlled by Copeland, A. Copeland Enterprises, Inc. ("Old ACE"), and its wholly-owned acquisition subsidiary, Biscuit Investments, Inc. ("Biscuit"), signed an engagement letter with Wasserstein, a New York investment bank boutique. This agreement committed Wasserstein to serve as the "exclusive financial adviser" to Old ACE and Biscuit in connection with their prospective acquisition of Church's Fried Chicken ("CFC"). Acting chiefly through Ward, its Vice Chairman, Wasserstein devised a merger financing plan that contemplated finding an unsecured, subordinated lender that would commit to provide Biscuit a bridge loan and underwrite high-yield or "junk" bonds to capitalize the merged corporation. As Wasserstein lacked underwriting capacity, Biscuit solicited proposals for the unsecured financing, eventually choosing Merrill Lynch ("Merrill") as the subordinated lender. Merrill lent Biscuit $173 million to fund its tender offer for CFC. This loan was conditioned on Copeland's contributing specified recipe royalties and the franchising arm of Old ACE to Biscuit. Copeland testified in the instant litigation that this condition was agreed to and complied with in reliance on advice from Wasserstein and Ward.

The tender offer closed on March 21, 1989. Biscuit acquired 86.5% of CFC's shares and paid Wasserstein the balance of the fees owed under the engagement letter.

The terms of the bridge loan, which was by then in place, gave Merrill the right to designate two individuals to serve on Biscuit's board of directors. Six days after the closing of the tender offer, Merrill designated — and Copeland elected as directors — both Ward and Raymond Minella, the lead Merrill executive handling the merger. Ward agreed to serve only after Minella orally promised that Merrill would indemnify Ward for claims arising out of his service on Biscuit's board of directors. These two continued to serve on that board until September, 1989, when Biscuit merged into CFC, which thereupon changed its name to Al Copeland Enterprises, Inc. ("New ACE"). Copeland was the CEO and chairman of New ACE and owned all of its common stock. Again on Merrill's designation, Copeland elected Minella and Ward to serve as directors of New ACE. Ward served until January 1990, when he resigned after learning that Merrill would not indemnify him after all.

Flash back to 1988: Biscuit received a letter from Merrill stating that Merrill was "highly confident" that it could sell up to $200 million worth of junk bonds to capitalize New ACE; however, Merrill never took the bond issue to market. This lack of long-term financing prompted New ACE's creditors, including Merrill itself as the bridge lender, to put New ACE into involuntary bankruptcy in 1991.

The following year, 1992, Copeland personally sued Merrill, alleging negligence and breaches of contractual and fiduciary duties, and claiming damages resulting from the salary he lost, the royalties he had foregone, and the assets he had contributed to Biscuit. Merrill and Copeland finally settled that litigation in 1997: Merrill agreed to pay Copeland a substantial sum of money; Copeland agreed to release all claims against "Merrill Lynch, its past, present, and future officers, directors, employees, agents [and] representatives" (emphasis ours).

After settling with Merrill, Copeland filed the instant action against Wasserstein and Ward in Louisiana state court. Copeland alleged that Wasserstein, as a financial adviser to the corporations, and Ward, as a director of Biscuit and its successor, New ACE, had breached duties they owed to Copeland individually, had failed to disclose material information to him, and had caused him to rely detrimentally on their negligent or fraudulent misrepresentations. The gist of Copeland's allegations was that Wasserstein and Ward knew or should have known — but failed to disclose to Copeland — that, among other things, (1) the merger and financing plans were unworkable or unsound, (2) the Merrill "deal team" had no junk-bond experience, and (3) the junk-bond market had ceased to exist before Biscuit's acquisition of CFC closed.

Both Wasserstein and Ward removed Copeland's state-court suit to the Eastern District of Louisiana on diversity grounds and subsequently filed motions to dismiss pursuant to Rule 12(b)(6). The district court granted Wasserstein's motion, holding that it owed no fiduciary duty to Copeland personally and, alternatively, that his claims, which the court categorized as sounding in tort rather than in contract, had prescribed. The court denied Ward's dismissal motion, however, concluding that Copeland had pled (1) a conflict-of-interest claim that could support a fiduciary-duty claim and (2) a special-relationship claim that could support a nonderivative cause of action.

In 2000, Ward filed a summary judgment motion grounded in, inter alia, release, prescription, lack of standing, and absence of causation. In due course, the district court granted Ward's motion and dismissed Copeland's claims against him, stating that it "primarily rel[ied] upon ... the threshold issue, and that is the effect of that settlement agreement between Copeland and Merrill Lynch," in which Copeland had released, among others, Merrill's "representatives." In addition to dismissing all claims against both Wasserstein and Ward, the court awarded them costs.

Ward and Wasserstein had filed a motion for sanctions against Copeland and his counsel on the theory that they knew when the case was filed that it was time-barred and otherwise meritless. After analyzing the motion from the bench, but discussing only the release issue in any detail, the trial court orally denied Wasserstein and Ward's motion for sanctions.

After final judgment issued, Copeland timely appealed the district court's grants of Wasserstein's 12(b)(6) motion and Ward's summary-judgment motion, as well as the award of costs. Wasserstein and Ward timely cross-appealed the court's denial of their motion for sanctions.

II. ANALYSIS
A. Standards of Review

We examine a district court's grants of

both a motion to dismiss and a motion for summary judgment under a de novo standard of review. In the former, the central issue is whether, in the light most favorable to the plaintiff, the complaint states a valid claim for relief. In the latter, we go beyond the pleadings to determine whether there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.1

By contrast, we review the denial of sanctions and the allocation of costs for abuse of discretion.2

B. Fiduciary Duty of Wasserstein

Copeland appeals the district court's dismissal of his claim that Wasserstein breached a fiduciary duty. In the district court, the parties disputed (1) whether an investment bank acting as a financial adviser owes a corporate client any fiduciary duty; (2) whether, if such a duty is owed, a controlling shareholder can maintain a cause of action for breach of such a duty to the corporation; and (3) whether a claim for the breach of such a duty prescribes in one year or in ten. The first two issues present novel questions of Louisiana law, but we have often distinguished tort claims from contract claims for purposes of prescription. Thus, the third issue — prescription — implicates Louisiana law that is settled, invoking a line of cases that resolves this claim in Wasserstein's favor. As we conclude that Copeland's claims against Wasserstein have prescribed, we do not address the first two questions.

Even when we assume without deciding that (1) Wasserstein owed a fiduciary duty to Biscuit and Old ACE, and (2) Copeland's alleging a breach of Wasserstein's fiduciary duty would entitle him to sue Wasserstein directly, we are convinced that this purported cause of action has prescribed. Under Louisiana law, a claim for breach of a fiduciary duty is generally personal and prescribes in ten years, and a negligence claim is delictual and prescribes in one year.3 We have recognized this dichotomy in a long line of cases involving well-recognized categories of fiduciaries, producing a...

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