Leonard v. Dorsey & Whitney Llp

• Decision Date: 15 January 2009
• Docket Number: No. 07-2220.,No. 07-2260.,No. 07-2242.,No. 07-2258.,No. 07-2261.,07-2220.,07-2242.,07-2258.,07-2261.,07-2260.
• Citation: 553 F.3d 609
• Parties: Brian F. LEONARD; Marshall Investments Corp.; Page State Bank; Mcville State Bank; Ramsey National Bank and Trust of Devils Lake; Security Bank of USA; Ultima Bank Minnesota; First National Bank and Trust Co.; Dacotah Bank; North Country Bank and Trust; First Federal Bank of the Midwest; First American Bank and Trust; Northstate LLC; Security State Bank of Sebeka; First National Bank of the North; First Independent Bank; Citizens State Bank of Roseau; Farmers State Bank; State Bank of Park Rapids; New Auburn Investment Inc.; Peoples State Bank of Madison Lake; Bank of Luxemburg; Lake Country State Bank; Community National Bank; United Community Bank of North Dakota; Choice Financial Group; Security State Bank; Campbell County Bank Inc.; Security First Bank of North Dakota; First State Bank of Bigfork; McIntosh County Bank; Oregon Community Bank and Trust; Bremer Business Finance Corporation, Plaintiffs-Appellees, v. DORSEY & WHITNEY LLP, a Minnesota Limited Liability Partnership, Defendant-Appellant. Bremer Business Finance Corporation; Plaintiff-Appellee/Cross-Appellant, and Brian F. Leonard, Trustee, Plaintiff-Appellee, v. Dorsey & Whitney LLP, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

553 F.3d 609

Brian F. LEONARD; Marshall Investments Corp.; Page State Bank; Mcville State Bank; Ramsey National Bank and Trust of Devils Lake; Security Bank of USA; Ultima Bank Minnesota; First National Bank and Trust Co.; Dacotah Bank; North Country Bank and Trust; First Federal Bank of the Midwest; First American Bank and Trust; Northstate LLC; Security State Bank of Sebeka; First National Bank of the North; First Independent Bank; Citizens State Bank of Roseau; Farmers State Bank; State Bank of Park Rapids; New Auburn Investment Inc.; Peoples State Bank of Madison Lake; Bank of Luxemburg; Lake Country State Bank; Community National Bank; United Community Bank of North Dakota; Choice Financial Group; Security State Bank; Campbell County Bank Inc.; Security First Bank of North Dakota; First State Bank of Bigfork; McIntosh County Bank; Oregon Community Bank and Trust; Bremer Business Finance Corporation, Plaintiffs-Appellees, v. DORSEY & WHITNEY LLP, a Minnesota Limited Liability Partnership, Defendant-Appellant.

Bremer Business Finance Corporation; Plaintiff-Appellee/Cross-Appellant, and Brian F. Leonard, Trustee, Plaintiff-Appellee, v. Dorsey & Whitney LLP, Defendant-Appellant/Cross-Appellee.

No. 07-2220.

No. 07-2242.

No. 07-2258.

No. 07-2261.

No. 07-2260.

United States Court of Appeals, Eighth Circuit.

Submitted: April 17, 2008.

Filed: January 15, 2009.

Richard Gary Mark, argued, Mark G. Schroeder, Jason R. Asmus, on the brief, Minneapolis, MN, for appellant.

Edward W. Gale, argued, Thomas C. Atmore, on the brief, Minneapolis, MN, for Leonard, et. al.

Paul Laurin Ratelle, argued, Minneapolis, MN, for Bremer Business.

Before MURPHY, COLLOTON, and SHEPHERD, Circuit Judges.

SHEPHERD, Circuit Judge.

One of Minnesota's largest law firms is before us, requesting that we overturn judgments that it committed legal malpractice and breached fiduciary duties owed to a client. On its side it has a recent decision of the Minnesota Supreme Court and our duty to conscientiously ascertain and apply state law. We predict that the Minnesota Supreme Court would reverse the judgments against Dorsey & Whitney LLP with instructions to dismiss. We must therefore do the same.

I.

This case is in federal court because the Plaintiffs' claims are related to the Chapter 7 bankruptcy case filed by SRC Holding Corporation, also known as Miller & Schroeder, Inc. (M & S). See 28 U.S.C. § 1334(b). Trustee Brian F. Leonard, on behalf of M & S's bankruptcy estate, brought an adversary complaint against the law firm Dorsey & Whitney LLP (Dorsey), alleging that the firm breached fiduciary duties that it owed to its client M & S. Bankruptcy estate claimant Bremer Business Finance Corporation (Bremer) brought a separate adversary complaint against Dorsey, alleging three claims premised on the theory that Bremer was Dorsey's client. The Trustee joined Bremer's complaint,¹ bringing a claim for indemnity and contribution against Dorsey to offset any monies that Bremer might recover in its claims against the estate.

Dorsey consented to the entry of a judgment by the bankruptcy judge on the Trustee's complaint under 28 U.S.C. § 157(c)(2). Dorsey did not consent to the entry of a judgment on Bremer's complaint, so the bankruptcy judge submitted proposed findings of fact and conclusions of law to the district court. 28 U.S.C. § 157(c)(1). The district court reviewed the bankruptcy judge's decision on the Trustee's complaint as an appeal, 28 U.S.C. § 158(a)(1). It considered the bankruptcy judge's proposed findings and conclusions on Bremer's complaint after reviewing de novo the matters to which the parties objected. 28 U.S.C. § 157(c)(1). We have appellate jurisdiction over the final decisions of both courts under 28 U.S.C. § 158(d)(1) and 28 U.S.C. § 1291. See In re M & S Grading, Inc., 526 F.3d 363, 368 (8th Cir.2008).

While the Trustee's and Bremer's claims went forward in the federal courts, parallel litigation involving the same claims and transactions proceeded in the Minnesota state courts. The state-court plaintiffs were 28 banks that had been dismissed from the Trustee's action for lack of subject-matter jurisdiction, and three banks from whose claims the bankruptcy court abstained "in the interest of justice, or in the interest of comity with State courts or respect for State law" under 28 U.S.C. § 1334(c)(1). The claims of the 31 banks were the same as those alleged in Bremer's complaint. As a result of limited federal court jurisdiction, the two actions would decide the same questions of law on a nearly identical set of facts.

Minnesota law supplies the rules of decision for this case. Just as in an action brought under diversity jurisdiction, the doctrine of Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), governs our application of state law. See FDIC v. Wabick, 335 F.3d 620, 625 (7th Cir.2003). Under the Erie doctrine, a federal court is bound by the decisions of the state's highest court. HOK Sport, Inc. v. FC Des Moines, L.C., 495 F.3d 927, 934-35 (8th Cir.2007). If the state's highest court has not clearly spoken, we may rely on the decisions of intermediate state courts, unless we are convinced by persuasive data that the highest state court would decide the issue differently. United Fire & Cas. Ins. Co. v. Garvey, 328 F.3d 411, 413 (8th Cir.2003) (citing Comm'r v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967)). In attempting to predict state law, a federal court may "consider relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data. ..." McKenna v. Ortho Pharm. Corp., 622 F.2d 657, 663 (3d Cir.1980). Our duty is to conscientiously ascertain and apply state law, not to formulate new law based on our own notions of what is the better rule. See David v. Tanksley, 218 F.3d 928, 930 (8th Cir.2000); McKenna, 622 F.2d at 663.

As the parallel actions rounded their turns through the courts, Bremer's federal action ran a few lengths behind the 31 banks' state court litigation. The state trial court granted summary judgment in Dorsey's favor, whereas the bankruptcy court denied summary judgment and held a seven-day trial. The bankruptcy court was aware of the state court's decision but unwilling to give it preclusive or persuasive effect. By the time the district court considered Bremer's objections to the bankruptcy court's proposed decision, the Minnesota Court of Appeals had partially reversed the trial court's decision, but the Minnesota Supreme Court had granted further review. McIntosh County Bank v. Dorsey & Whitney, LLP (McIntosh I), 726 N.W.2d 108 (Minn.Ct.App.2007), rev'd in part, 745 N.W.2d 538 (Minn.2008). The district court did not rely on either of the state courts' opinions in its consideration of the bankruptcy court's recommendations.

The Minnesota Supreme Court issued its opinion in McIntosh County Bank v. Dorsey & Whitney, LLP (McIntosh II) while this appeal was pending. 745 N.W.2d 538 (Minn.2008). Unlike the bankruptcy and district courts, we have the advantage of knowing the Minnesota Supreme Court's precise view on some of the questions of law controlling Bremer's claims. Consequently, we must reverse Bremer's case as contrary to the McIntosh II decision, even if we might have thought the district court's predictions of Minnesota law correct when they were made. Vandenbark v. Owens-Ill. Glass Co., 311 U.S. 538, 543, 61 S.Ct. 347, 85 L.Ed. 327 (1941). Not only does McIntosh II tell us how to decide the Bremer case, it also sheds light on the legal relationships among the parties. Because the bankruptcy court's decision is inconsistent with how we predict the Minnesota Supreme Court would characterize those relationships, we must also reverse the Trustee's case.

II.

In a bankruptcy adversary proceeding tried on the merits without a jury, "the court must find the facts specially and state its conclusions of law separately." Fed.R.Civ.P. 52(a)(1); Fed. R. Bankr.P. 7052. The rule only requires that the trial court set forth its reasoning with enough clarity that the appellate court may understand the basis of the decision. Century Marine Inc. v. United States, 153 F.3d 225, 231 (5th Cir.1998); Sierra Fria Corp. v. Donald J. Evans, P.C., 127 F.3d 175, 180 (1st Cir.1997). Witness-by-witness particularity and expansive dissertations of law are unnecessary. Century Marine, 153 F.3d at 231; Sierra Fria, 127 F.3d at 180. "Ideally, findings of fact should be clear, specific, and complete, without unrealistic and uninformative generality on the one hand, and without an unnecessary and unhelpful recital of nonessential details of evidence on the other." 9C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2579 at 330 (3d ed.2008). We will not set aside a factual finding unless it is clearly erroneous and we will "give due regard to the trial court's opportunity to judge the witnesses' credibility." Fed.R.Civ.P. 52(a)(6).

Rule 52(a) does not, however, "inhibit an appellate court's power to correct errors of law, including those that may infect a so-called mixed finding of law and fact, or a finding of fact that is predicated on a misunderstanding of the governing rule of law." Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 501, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984). We will overturn a factual finding that is based on the application of an erroneous legal standard. Shull v. Dain, Kalman & Quail, Inc., 561 F.2d 152, 155 (8th Cir.1977). So long as we give proper deference to the trial court's credibility determinations, we may independently review the entire record to the degree necessary to correct legal error. See Bose Corp., 466 U.S. at 499-501, 104 S.Ct. 1949.

With this standard in mind, we must restate the trial courts' factual findings² in a manner consistent with our duty to correctly apply Minnesota law. We set aside factual findings derived from erroneous...