Feddersen v. Garvey

• Decision Date: 26 October 2005
• Docket Number: No. 05-1305.,05-1305.
• Citation: 427 F.3d 108
• Parties: Frederick FEDDERSEN, Plaintiff, Appellant, v. Carolyn S. GARVEY, Esq.; and Douglas, Leonard & Garvey, P.A., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

427 F.3d 108

Frederick FEDDERSEN, Plaintiff, Appellant, v. Carolyn S. GARVEY, Esq.; and Douglas, Leonard & Garvey, P.A., Defendants, Appellees.

No. 05-1305.

United States Court of Appeals, First Circuit.

Heard September 14, 2005.

Decided October 26, 2005.

Steven M. Latici, with whom McKean, Mattson & Latici, P.A., was on brief, for appellant.

Peter F. Kearns, for appellees.

Before LIPEZ and HOWARD, Circuit Judges, and RESTANI,^* Judge.

LIPEZ, Circuit Judge.

Frederick Feddersen brought this malpractice action against the defendants, a lawyer and law firm that represented him during divorce proceedings. The district court granted summary judgment for the defendants on statute of limitations grounds. Feddersen appealed. We affirm.

I.

We review the record submitted for summary judgment in the light most favorable to Feddersen. Cloutier v. Costco Wholesale Corp., 390 F.3d 126, 128 (1st Cir.2004). In 1993, Feddersen, having retained the defendants to represent him, filed for divorce from his then-wife, Shelly Cannon Feddersen ("Cannon"). Although Feddersen and Cannon had entered into a prenuptial agreement before their 1988 marriage, their divorce proceedings were lengthy and complex. Under the terms of the prenuptial agreement, Cannon was entitled to "twenty-five percent of the net book value of FMT corporation" — a closely-held corporation that was Feddersen's principal asset — "calculated as of the end of the fiscal year immediately preceding the filing of the libel for divorce." In the Matter of Feddersen and Feddersen, No.2001-642, slip op. 1 (N.H.2003). The parties' efforts to determine the net book value of FMT constituted both a major issue in the divorce and the basis of this case.

During the pendency of the divorce, FMT was prosecuting two patent infringement claims, both related to technology used in plastic bottles manufacturing. By 1994, the first claim, against a company known as "Nessei," had resulted in a judgment in favor of FMT for $3.4 million, which had been confirmed on appeal. The second claim, against a company called "Constar," was at an earlier stage of litigation. Feddersen, through the defendants, informed Cannon of the net value of the Nessei settlement and of the existence of the Constar litigation. In December 1994, as discussions on the divorce neared completion, Feddersen offered Cannon the chance to share in any proceeds of the Constar lawsuit in exchange for her contribution to FMT's legal fees in the case. Cannon declined Feddersen's offer and stipulated that she would waive any interest in the Constar case in exchange for a lump sum property settlement. Subsequently, Cannon and Feddersen stipulated to a property settlement of $600,000. Because FMT's assets had been depleted by the two patent litigations, the parties agreed that their stipulation would be filed in escrow with the court until the money from the Nessei case was received, at which time Cannon would be paid and the case would proceed to a final hearing.

By early 1995, the Constar case had been referred to a special master, who, in February 1995, found in favor of FMT and recommended a judgment of $30 million. Feddersen and counsel for FMT expected a lengthy and costly appeal, but Constar settled for $11 million in April 1995. FMT received its first payment of $5 million from Constar in May 1995, well before any payment was received from Nessei.¹

Neither Feddersen nor the defendants informed Cannon or her lawyers of the developments in the Constar case. Instead, on June 1, 1995, the defendants sent the New Hampshire court and Cannon's lawyers a letter stating that the awaited "contingency," meaning the receipt of funds sufficient to satisfy the property settlement in the divorce stipulation, had occurred. Cannon and her lawyers assumed that the money from Nessei had been delivered.

For a final hearing, the defendants prepared for Feddersen an affidavit of his current financial standing, which was submitted to the court in accordance with former New Hampshire Superior Court Rule 158.² In the affidavit, Feddersen certified that the value of his interest in FMT corporation was "[$]1,440,000 [b]ased on book value 12/31/92," and that his income was $150,000 per year. A final divorce decree, incorporating the $600,000 property settlement, entered on July 13, 1995.

In late 1998, Cannon petitioned for additional child support payments from Feddersen. Trial was scheduled for March 1999, and discovery commenced. In reviewing Feddersen's tax returns, Cannon's lawyer, Patricia Murphy, learned that Feddersen's income for 1995 had been nearly $4 million, not the $150,000 he had sworn to in the affidavit prepared by the defendants. Murphy and Cannon soon learned about the Constar settlement. By this time, Feddersen had retained a new lawyer, Steven Grill. Murphy told Grill that she was thinking about moving to set aside the 1995 property settlement on the grounds of fraud.³

Grill explored Murphy's theory and determined that Feddersen had "a problem" because of the discrepancy between his financial affidavit and his actual income and assets. He told Feddersen as much in a March 26, 1999 letter and status report, going so far as to warn his client that if Cannon "pursues a fraud claim, you may be very hard pressed to prove that she actually had all the details regarding the Constar case at the time the Permanent Stipulation was negotiated and agreed to," and that "there is a strong possibility that the Affidavit would not be considered a `current' affidavit as required by New Hampshire law." Grill "strongly recommend[ed]" to Feddersen that he try to settle Cannon's claims and avoid litigation of "a complicated and potentially very dangerous issue."

In the same letter, Grill reacted angrily to news that Feddersen had put Charles Douglas of the defendant law firm on notice of Cannon's potential fraud claim. "My main concern," Grill wrote, "is that having been alerted to the potential problem... Douglas may attempt to protect himself against any potential malpractice claim."

Shortly after receiving the March 26 letter, Feddersen terminated his relationship with Grill (who later noted that he and Feddersen had not been "seeing eye-to-eye on a number of strategic and judgmental matters"). Feddersen retained, as new counsel, Matthew Cairns and Garry Lane. Feddersen's initial April 14, 1999 meeting with Cairns and Lane was recorded at Feddersen's request. At that meeting, Feddersen revealed to Cairns and Lane that he had called Carolyn Garvey, a named defendant in this case along with Douglas and their law firm. According to Feddersen, Garvey had denied that anything about the 1995 settlement was improper. Feddersen also told Cairns and Lane that, according to Grill, Garvey and her partners would "be fixing all the documents up now to cover their ass for malpractice."

Citing the Shafmaster case, see supra n. 3, Cannon moved, on May 14, 1999, to set aside the 1995 property settlement. At the recommendation of the marital master handling the case, settlement negotiations commenced. Through Cairns and Lane, Feddersen sought to resolve Cannon's claims by offering her a substantial share in the potential proceeds of a third patent infringement case, then ongoing, with a company called "Aoki." Ultimately, negotiations were unsuccessful, and the matter proceeded to a hearing. On September 5, 2001, the marital master set aside the property settlement. His decision was affirmed by the New Hampshire Supreme Court on March 19, 2003. In the Matter of Feddersen and Feddersen, No.2001-642 (N.H.2003). Feddersen then paid $1.3 million to settle all remaining issues with Cannon.

Invoking 28 U.S.C. § 1332, Feddersen filed the current suit in the district court on July 29, 2003. The defendants moved for summary judgment on the grounds that Feddersen had exceeded the three year statute of limitations for legal malpractice actions provided by N.H.Rev.Stat. Ann. § 508:4.⁴ The district court granted the defendants' motion, and this appeal followed.

II.

We review a grant of summary judgment de novo, based on the record as it stood at the time of the district court's order. Cordero-Soto v. Island Fin., Inc., 418 F.3d 114, 118 (1st Cir.2005). We will affirm summary judgment if the record shows "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rathbun v. Autozone, Inc., 361 F.3d 62, 66 (1st Cir.2004) (quoting Fed.R.Civ.P. 56(c)). A "material" fact is one "that might affect the outcome of the suit under the governing law.... Factual disputes that are irrelevant or unnecessary will not be counted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

A. The Discovery Rule

In this diversity action the governing law is, of course, the law of New Hampshire. Rodi v. Southern New England School of Law, 389 F.3d 5, 13 (1st Cir.2004). New Hampshire law provides that "the statute of limitations for a malpractice action is three years." Furbush v. McKittrick, 149 N.H. 426, 821 A.2d 1126, 1129 (2003) (applying discovery rule to legal malpractice case); N.H. R.S.A. § 508:4. When a suit is initiated more than three years after the act or omission alleged to constitute malpractice, "the plaintiff has the burden of proving that an exception applies to toll the statute of limitations such that his malpractice claim would be timely filed." Furbush, 821 A.2d at 1129. One such exception is the discovery rule:

when the injury and its causal relationship to the act or omission were not discovered and could not reasonably have been discovered at the time of the act or omission, the action shall be commenced within 3 years of the time the plaintiff discovers, or in the exercise of reasonable diligence should have discovered, the injury and its causal relationship to the act or omission complained of.

N.H. R.S.A. § 508:4. Feddersen contends that the...