GUINNESS MAHON CAYMAN TR. v. WINDELS, MARX, ET AL.

• Decision Date: 20 April 1988
• Docket Number: No. 86 Civ. 2414 (GLG).,86 Civ. 2414 (GLG).
• Citation: 684 F. Supp. 375
• Parties: GUINNESS MAHON CAYMAN TRUST, LTD., as Trustee of the Lynbrett Trust, Plaintiff, v. WINDELS, MARX, DAVIES & IVES, a partnership, and Mitchell A. Gilbert, Defendants/Third-Party Plaintiffs, v. E. Miles PRENTICE, III and Shanley & Fisher, a partnership, Third-Party Defendants.
• Court: U.S. District Court — Southern District of New York

684 F. Supp. 375

GUINNESS MAHON CAYMAN TRUST, LTD., as Trustee of the Lynbrett Trust, Plaintiff, v. WINDELS, MARX, DAVIES & IVES, a partnership, and Mitchell A. Gilbert, Defendants/Third-Party Plaintiffs, v. E. Miles PRENTICE, III and Shanley & Fisher, a partnership, Third-Party Defendants.

No. 86 Civ. 2414 (GLG).

United States District Court, S.D. New York.

April 20, 1988.

Smith, Steibel, Alexander & Saskor, P.C., New York City by Ludwig A. Saskor, of counsel, Beus, Gilbert, Wake & Morrill, Phoenix, Ariz., by Alfred W. Ricciardi, Phillip D. Ferris, of counsel, for plaintiff.

Windels, Marx, Davies & Ives, New York City by Raymond T. Munsell, Arthur E. Hoffmann, Jr., of counsel, for defendants/third-party plaintiffs.

Brown & Wood, New York City by Roger J. Hawke, of counsel, for third-party defendant E. Miles Prentice, III.

Wilson, Elser, Moskowitz, Edelman & Dicker, New York City by John W. Manning, of counsel, for third-party defendant Shanley & Fisher.

GOETTEL, District Judge:

This is a rather unusual action in which a borrower sues a bank's law firm for, inter alia, legal malpractice. The Allied Irish Bank ("the Bank") moves to intervene as a defendant and counterclaimant in the action. The defendant attorneys (Windels, Marx, Davis & Ives and one of its partners, Mitchell A. Gilbert) move for summary judgment on grounds that they owed no obligations to the borrower. The plaintiff moves to serve a second amended complaint.

I. FACTS

Briefly stated, the facts giving rise to this unusual situation are as follows. The plaintiff, Guinness Mahon Cayman Trust, Ltd. ("Guinness Mahon" or the "trustee"), is a Cayman Island trustee for the Lynbrette Trust ("Lynbrette" or the "Trust"), also a Cayman entity.¹ The beneficiaries are Irish citizens. Lynbrette approached the Allied Irish Bank (an Irish bank having a New York office) concerning a large loan ($2,775,000) it wished to obtain, which in turn it intended to lend to an Arizona real estate developer known as Roadhaven. The second transaction was to be at a higher rate of interest and would thus produce profit for the Trust. The Bank agreed to loan Lynbrette the money, providing that the security which the Trust was to obtain on certain Arizona property owned by Roadhaven would be assigned to the Bank and that the individual beneficiaries of the Trust would guarantee the loan. At least a portion of these funds were distributed to the Arizona company prior to its providing any form of security. Substantial difficulties were thereafter experienced in attempting to obtain adequate security from Roadhaven. Certain deeds of trust were ultimately obtained (as described hereafter), but when Roadhaven bankrupted it appeared that the security position of the Trust and the Bank were junior to other interests, with the result that the entire loan may be lost.

Apparently, the interest in the Arizona project was the sole asset of the Lynbrette Trust. The Bank, therefore, attempted to collect from the individual guarantors, the Irish beneficiaries of the Trust. To preempt that, the trustee, Guinness Mahon, commenced two suits—this one against the Bank's attorneys and a second suit shortly thereafter against the Bank.² The Bank, not surprisingly, counterclaimed for the sums owed to it. Both suits originally were filed in New York State court. The defendants in this suit, the New York law firm and one of its partners (the Bank's attorneys at all times pertinent to this action), removed this action to Federal court on grounds of diversity.³ The basis for the removal by the New York defendants is unclear considering the requirement that diversity removal is available "only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." 28 U.S.C. § 1441(b) (1982). Plaintiff, however, did not challenge the removal, and may now have waived its right to do so. See Woodward v. D.H. Overmyer Co., 428 F.2d 880, 882-83 (2d Cir.1970), cert. denied, 400 U.S. 993, 91 S.Ct. 460, 27 L.Ed.2d 441 (1971) (holding plaintiff waives right to remand where no timely request for remand made); Chevrier v. Metropolitan Opera Ass'n, 113 F.Supp. 109, 110 (S.D.N.Y.1953) (holding plaintiff waived right to remand by affirmative acts indicating recognition and acceptance of federal jurisdiction). The pending state court action has not proceeded rapidly, although the discovery conducted between the parties has been available in both actions.

The theory of the plaintiff's malpractice claim against the Bank's attorneys results from the following. The Trust and its attorneys had been unsuccessful in obtaining the desired mortgages from Roadhaven. This resulted in part from the fact that Roadhaven was already involved in a number of transactions as to which security interests already had been granted. The Bank understandably became impatient over the Trust's failure to obtain security from Roadhaven. Consequently, the Bank advised its own attorneys to obtain Arizona counsel and pursue the matter. Ultimately, the Bank's attorneys, with assistance of local counsel, procured a deed in trust (the equivalent of a mortgage) on California property owned by Roadhaven and, later, a deed in trust on the Arizona property as to which the loan had been made. Both of these deeds in trust were for the benefit of the Lynbrette Trust. The Bank had the Trust assign these interests to it. Both mortgages were subordinate to earlier loans, and the Arizona deed in trust was initially filed in the wrong county by local counsel. By the time it had been refiled, a substantial lien that would have otherwise been junior to the deed in trust had been filed.

The Bank and its attorneys were aware of these problems. There is a factual dispute as to the extent to which either of them advised the Trust or its attorneys about these problems. They did provide the Trust with copies of the deeds in trust, however. The fact that the Arizona deed in trust had initially been filed in the wrong county, as well as the existence of senior liens, was apparent from the face of the documents. There also appears to be some doubt that any better security could have been obtained at that point even absent the mistake in filing, which caused a junior lien to become senior. As to the senior lien, there is a question as to whether that additional senior lien is what will prevent the Trust from recovering in the bankruptcy proceeding.

The plaintiff essentially makes two claims against the attorneys, although a variety of legal theories are employed. The first is that the Bank's attorneys became, in effect, the Trust's attorneys for purposes of obtaining the security, and that the attorneys are guilty of malpractice for the manner in which they carried out their assignment. The second claim is that, even if the Bank's attorneys could not be considered the Trust's attorneys, they had an obligation to fully advise the Trust of the adverse developments. This failure, plaintiff contends, became material because later the Trust had the opportunity to be repaid by Roadhaven on the loan and to withdraw from the project. Needless to say, plaintiff argues that the Trust would have done so had it been apprised of the deficiencies in the security. Although we entertain some doubts as to the likelihood that Roadhaven would have retired such a large loan considering its subsequent bankruptcy, for purposes of the pending motions we assume that full repayment was promised.⁴

II. DISCUSSION

a. The Defendants' Motion for Summary Judgment

Although the Bank's motion to intervene was filed before the defendant attorneys' motion for summary judgment, intervention would be impossible if the action no longer existed. Consequently, we will deal with the defendants' motion for summary judgment first.

With respect to events involved in obtaining the deeds of trust, and the extent of disclosures between the parties, a large mass of evidence has been submitted by the parties. Some of the evidence, and particularly the conclusions to be drawn therefrom, is in dispute. Fed.R.Civ.P. 56(c) provides that summary judgment is appropriate if "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." The burden is on the moving party to demonstrate the absence of a material, factual dispute. Fed.R.Civ.P. 56(e); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). In addition, in determining whether that burden is met, the court must draw all reasonable inferences and resolve all ambiguities in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962) (per curiam).

For years it was commonly believed that the Second Circuit's predilection toward reversal of summary judgment decisions had effectively buried Rule 56. A combination of outcries from the local bar and a troika of Supreme Court decisions on the subject⁵ led to a brief revival of the procedure's usefulness. In Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir.1986), cert. denied, ___ U.S. ___, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987), the Second Circuit dismissed reports of the rule's death as both premature and grossly exaggerated. The post-Knight embrace of Rule 56, however, appears to be somewhat ambivalent. In Apex Oil Co. v. DiMauro, 822 F.2d 246, 252 (2d Cir.), cert. denied, ___ U.S. ___, 108 S.Ct. 489, 98 L.Ed.2d 487 (1987), the court conceded "that while summary judgment is a valuable means for avoiding unnecessary trials, ... it should not be regarded as a substitute for trial." Just five months after Apex Oil was decided, and only thirteen months after the court ostensibly sought in Knight to definitively put to rest rumors of the rule's demise, the court reversed summary judgment in a civil rights case and took the opportunity to decry "the frequency of cases in which summary...