Federal Sav. v. MCGINNIS, JUBAN, BEVAN ET AL., 89-327.

• Citation: 808 F. Supp. 1263
• Decision Date: 13 July 1992
• Docket Number: No. 89-327.,89-327.
• Parties: FEDERAL SAVING AND LOAN INSURANCE CORP., etc., v. McGINNIS, JUBAN, BEVAN, MULLINS & PATTERSON, P.C., et al.
• Court: U.S. District Court — Eastern District of Louisiana

808 F. Supp. 1263

FEDERAL SAVING AND LOAN INSURANCE CORP., etc., v. McGINNIS, JUBAN, BEVAN, MULLINS & PATTERSON, P.C., et al.

No. 89-327.

United States District Court, E.D. Louisiana.

July 13, 1992.

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James A. Brown, Liskow & Lewis, New Orleans, LA, for plaintiffs.

Timothy E. Kelly, H. Alston Johnson, III, Phelps, Dunbar, Marks, Claverie & Sims, Baton Rouge, LA, Donald A. Hammett, John V. Baus, Jr., New Orleans, LA, Donald S. Zuber, Seale, Smith, Zuber & Barnette, Baton Rouge, LA, for defendants.

ORDER AND REASONS

FELDMAN, District Judge.^*

Before the Court are several motions. Defendant moves for summary judgment: (1) dismissing some of the FDIC's malpractice claims because the alleged negligence acts were not done in the course of a duty owed to the failed institution, (2) dismissing the FDIC's conflict of interest claims, (3) dismissing all the FDIC's claims because the FDIC is estopped from advancing them, and (4) ordering that the McGinnis, Juban firm is not vicariously liable for some of the alleged acts of malpractice committed by one of its partners.

Plaintiff has responded to defendants' motions with its own motions for summary judgment: (1) dismissing the estoppel defenses and (2) ordering that the McGinnis, Juban firm is vicariously liable for all its partner's alleged wrongdoing. Plaintiff has also filed motions for summary judgment (1) dismissing the defenses based on the comparative fault of the failed institution's former officers and directors, and (2) dismissing the defenses alleging that the FDIC was contributorily negligent and that it failed to mitigated its damages.

For the reasons that follow, defendants' motions are DENIED. The FDIC's motions are GRANTED.¹

BACKGROUND

In this case, still another federal court is left to pick up the pieces after a bank failure. In late Spring 1986, Sun Belt Federal Bank, F.S.B., a Louisiana savings and loan institution, was declared insolvent and the Federal Savings and Loan Insurance Company was appointed receiver of the failed institution. The FDIC² has sued the defendants, alleging that George Bevan, a Baton Rouge lawyer, committed malpractice in the course of representing Sun Belt as the closing attorney on a loan that ended up in default.

In late February 1985, Sun Belt extended an $898,000 loan to Mande Cove, Inc. In preparing the deal, Sun Belt hired, as is apparently customary, Mr. Bevan to serve as the closing attorney on the loan. George Bevan was a partner in the firm of McGinnis, Juban, Bevan, Mullins & Patterson, P.C. At the very least, the closing attorney's duties included (1) performing a title search on any real estate advanced as collateral and preparing a certificate of title examination, (2) preparing the necessary loan and mortgage documents, and (3) closing the transaction (including any act of sale involved). The FDIC, however, contends that the responsibilities of such a professional extend further and require the closing attorney to advise the institution concerning all relevant legal matters affecting the transaction, and to otherwise protect the bank's interests in the deal.

Ultimately, Mande Cove defaulted on the Sun Belt loan. The FDIC contends that had Bevan not committed certain acts of malpractice while acting as the closing attorney for Sun Belt, the bank would have learned that the transaction was ill-advised and either would have not made the loan, or would have restructured the deal to make it less risky.

Specifically, the FDIC maintains that Bevan breached his duties as the closing attorney in three ways. First, the FDIC says that Bevan performed a negligent title search on the property that was used for collateral. The FDIC maintains that Sun Belt required at least a second mortgage on the property. According to the FDIC, Bevan certified to Sun Belt that the subject property was only encumbered by a $175,000 first mortgage. Thus, Bevan apparently told Sun Belt, the bank could get the required second mortgage. The FDIC says that Sun Belt relied on Bevan's assurance and extended credit to Mande Cove. However, the FDIC contends that the property was in fact subject to a $1 million mortgage in addition to the $175,000 encumbrance Bevan had disclosed.

The FDIC says that if Sun Belt had known of the existing second mortgage, it either would have somehow restructured the deal to obtain a better position, or it would have refused to lend Mande Cove the money. Instead, Sun Belt made the loan, and when Mande Cove defaulted, it recovered only $25,000 of its lien on the property.

The FDIC also asserts that Bevan either intentionally or negligently failed to reveal crucial facts he knew concerning Mande Cove's circumstances that would have affected Sun Belt's willingness to go through with the loan. The FDIC claims that Bevan knew that Mande Cove had been formed just before it sought the loan, and was composed solely of three people who had previously borrowed substantial amounts of money from the bank.³ The FDIC adds that Bevan knew that the Mande Cove principals were hoping to borrow this money so that they could use it to pay past due interest on their prior loans from Sun Belt. Moreover, the FDIC contends that Bevan knew, or should have known, that because of the substantial amounts of money the Mande Cove people had previously borrowed, the February 1986 loan would violate the federal one-borrower regulations. The FDIC says that Bevan violated his fiduciary duties to Sun Belt as its closing attorney, and if he had revealed what he knew to the uninvolved officers and directors of the institution, the bank would have refused the loan.

Finally, the FDIC concludes that Bevan violated his fiduciary responsibilities to Sun Belt by not informing the uninvolved officers and directors that he was representing the Mande Cove principals at the same time that he was acting as Sun Belt's closing attorney in the February 1986 transaction. The FDIC claims that Bevan should have revealed that he had represented the Mande Cove principals in the previous dealings. If the uninterested officers and directors had known of this alleged conflict of interest, the FDIC contends, they would have had the chance to block the loan.

This is not the only civil suit arising out of Sun Belt's failure that the banking authorities brought. In 1986, FSLIC sued some of the officers and directors of Sun Belt, alleging that their negligent, intentional and even criminal conduct in loan approval led to the failed institution's demise. At issue in the prior litigation, called FSLIC v. Wendell P. Shelton, et al., was officer and director misconduct with respect to numerous loan transactions, including the Mande Cove deal. Earlier this year, the FDIC and the officer-director defendants settled the case for $60 million. The Sun Belt disgrace has become permanent lore in the annals of the epidemic of failed financial institutions in this country.

LAW AND APPLICATION

I. General Standards

A.

Summary judgment is appropriate if the record discloses that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). There is no genuine issue of fact if the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). Moreover, the mere existence of some technical factual dispute does not necessarily defeat an otherwise properly supported motion. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

Additionally, Rule 56(e) mandates that once the moving party has presented a properly supported motion for summary judgment, the court must grant the motion unless "the adverse party's response, by affidavit or as otherwise provided in this rule, ... sets forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). When the one opposing the motion bears the burden of proof on an issue, the moving party properly supports a summary judgment motion on that issue by merely "pointing out the absence of evidence supporting the non-moving party's case." Saunders v. Michelin Tire Corp., 942 F.2d 299, 301 (5 Cir.1991).

B.

One seeking to recover for legal malpractice must prove that "there was an attorney-client relationship, that the attorney was negligent in his representation of the client and that this negligence caused plaintiff some loss." Evans v. Detweiler, 466 So.2d 800, 802 (La.App. 4 Cir.1985).⁴ Negligence in this context is a lawyer's failure "to exercise at least that degree of care, skill, and diligence which is exercised by prudent practicing attorneys in his locality." Ramp v. St. Paul Fire and Marine Ins. Co., 263 La. 774, 269 So.2d 239, 244 (1972). Traditional notions of causation govern in the legal malpractice setting:

It is not enough that defendant was negligent. An attorney is liable for the harm caused by his negligence only if the client proves that such negligence is a proximate cause of that harm. An attorney's negligence would be a proximate cause or a cause-in-fact of harm to a client if the harm would not have occurred except for that negligence. If the harm would have occurred irrespective of such negligence, then that negligence is not a substantial factor or cause-in-fact.

Meyers v. Imperial Cas. Indem. Co., 451 So.2d 649, 654 (La.App. 3 Cir.1984) (citations omitted).

II.

A. The Scope of Bevan's Duty

Defendants contend that Sun Belt retained Bevan only "to conduct a title examination on the subject property, prepare the necessary loan and mortgage documents, and to pass on the act of sale." Defendants say that, by express agreement, Bevan's representation was limited to these tasks. He was, in...