Mcintosh County Bank v. Dorsey & Whitney, A06-486.

• Decision Date: 10 January 2007
• Docket Number: No. A06-486.,A06-486.
• Citation: 726 N.W.2d 108
• Parties: McINTOSH COUNTY BANK, et al., Appellants, v. DORSEY & WHITNEY, LLP, Respondent.
• Court: Minnesota Court of Appeals

726 N.W.2d 108

McINTOSH COUNTY BANK, et al., Appellants, v. DORSEY & WHITNEY, LLP, Respondent.

No. A06-486.

Court of Appeals of Minnesota.

January 10, 2007.

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Thomas C. Atmore, Edward W. Gale, Leonard, O'Brien, Spencer, Gale & Sayre, Ltd., Minneapolis, MN, for appellants.

Richard G. Mark, Mark G. Schroeder, Jason R. Asmus, Briggs and Morgan, P.A., Minneapolis, MN, for respondent.

Considered and decided by WILLIS, Presiding Judge; WRIGHT, Judge; and HUSPENI, Judge.^*

OPINION

WILLIS, Judge.

Appellants challenge the district court's grant of summary judgment to respondent on appellants' legal-malpractice, breach-of-contract, and negligent-misrepresentation claims. We conclude that the district court appropriately granted summary judgment to respondent on appellants' negligent-misrepresentation claim. The district court also correctly found that there are no genuine issues of material fact as to whether appellants have standing to sue respondent for legal malpractice under a contract-assignment or a tort theory. But because genuine issues of material fact exist as to whether appellants were third-party beneficiaries of respondent's legal services and whether appellants had an implied contract for legal services with respondent, we conclude that the district court erred when it granted summary judgment on appellants' legal-malpractice and breach-of-contract claims. We affirm in part, reverse in part, and remand.

FACTS

Appellants are 31 banks from the Midwest that participated in two loans, originated by Miller & Schroeder Financial, Inc. (Miller), to President R.C.-St. Regis Management Company (President). Under a "management agreement," President agreed to construct and manage a casino on the St. Regis Mohawk Tribe's reservation in New York, and the tribe agreed to repay President when the casino's revenues exceeded its expenses. The management agreement required approval from the National Indian Gaming Commission (NIGC), and such approval was obtained.

Miller arranged to make two loans to President to finance the casino project. As was Miller's business practice, it sought commitments from participating banks to purchase interests in the loans. Miller retained Dorsey & Whitney LLP (Dorsey), as it had done for past loan transactions, to draft loan documents, including a "pledge agreement," under which the tribe recognized its obligation to repay President, recognized President's pledge to Miller of all payments received from the tribe, and agreed to make the payments it owed to President under the management agreement to an escrow account for Miller. President submitted an amendment to the management agreement to the NIGC for review and approval, and Dorsey submitted loan documents, including the pledge agreement, for the NIGC's review and approval. Although there is no dispute that the amendment to the management agreement required NIGC approval, Dorsey advised Miller that the pledge agreement did not require NIGC approval, so Miller decided to close the loan without waiting for NIGC approval of the pledge agreement. Miller sent a letter to appellants and other prospective participating banks to advise them that the NIGC had not approved the amendment to the management agreement or reviewed the pledge agreement but that, because the review would take up to 60 days, which could be later than the scheduled casino opening, Miller wished to move forward and close the loan without waiting for NIGC approval.

The loans were closed, and Miller sold the loan balances to 32 banks, including appellants. Appellants signed "participation agreements," which were prepared internally by Miller, and which assigned to each appellant an interest in the loans, collateral, and collections; the agreements also required appellants to acknowledge that they had made a "complete examination of copies of all Loan Documents" and "approve[d] of the form and content of the same"; that they had received all of the information that they needed to "make an independent and informed judgment with respect to the Collateral, Borrower and Obligor and their credit and the desirability of purchasing an undivided interest in the Loan"; and that they accepted the "full risk of nonpayment" by President. The participation agreements also required appellants to acknowledge that Miller had made no warranty or representation regarding the enforceability of any loan documents and to waive their rights to sue Miller for any negligence by its attorneys or others, provided that Miller used "reasonable care in the selection" of counsel.

The casino opened in April 1999 but was financially unsuccessful, and President began to default on the loans shortly thereafter. In October 2000, representatives of Miller, Dorsey, several appellants, and the tribe met in New York. The tribe expressed its belief that it was not obligated to make payments under the pledge agreement because the agreement had not been approved by the NIGC and was therefore unenforceable. Subsequently, appellants sued the tribe in New York for breach of the pledge agreement, and the tribe responded with a qui tam action in federal court in New York. Appellants and the tribe ultimately reached a settlement agreement.

Miller filed for bankruptcy in January 2002, and appellants commenced an adversary proceeding against Dorsey in federal bankruptcy court, alleging that Dorsey was negligent when it advised Miller, and therefore appellants, that the pledge agreement did not require NIGC approval. The bankruptcy court dismissed all but three appellants because they had not filed proofs of claim against Miller's estate, and it denied Dorsey's motion for summary judgment as to the remaining three appellants.

In February 2005, Bremer Business Finance Corporation (Bremer), which had not participated with appellants in the adversary proceeding, commenced a separate action in federal bankruptcy court against Dorsey. In the same month, appellants filed suit against Dorsey in state district court, alleging the same claims that they had raised in the federal bankruptcy court. In May 2005, the bankruptcy court abstained from consideration of the claims of the three appellants remaining in bankruptcy court. See 28 U.S.C. § 1334(c)(1) (2000) (allowing a federal district court to abstain from hearing a bankruptcy proceeding "in the interest of justice, or in the interest of comity with State courts or respect for State law"). But the bankruptcy court declined to dismiss or abstain from consideration of Bremer's claims, while acknowledging that its failure to abstain could result in a case being tried in state court on the "same set of facts" as the case that would be tried in bankruptcy court. Dorsey moved for summary judgment in state district court in the action brought by appellants, and the court granted the motion. This appeal follows.

ISSUES

I. Was summary judgment appropriately granted to Dorsey on appellants' legal-malpractice claim based on third-party beneficiary, implied-contract, contract-as-signment, and tort theories?

II. Was summary judgment appropriately granted to Dorsey on appellants' breach-of-contract claim?

III. Was summary judgment appropriately granted to Dorsey on appellants' negligent-misrepresentation claim?

ANALYSIS

"A motion for summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law. On appeal, the reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted." Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993) (citation omitted). This court asks two questions when reviewing a district court's decision to grant summary judgment: (1) whether there are any genuine issues of material fact and (2) whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990). No genuine issue of material fact exists when "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party." DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). "[T]he party resisting summary judgment must do more than rest on mere averments." Id. at 71. A genuine issue for trial must be established by sufficient evidence. Id. at 69-70.

I. Legal Malpractice

To succeed on a legal-malpractice claim, a plaintiff must establish four elements: "(1) the existence of an attorney-client relationship; (2) acts constituting negligence or breach of contract; (3) that such acts were the proximate cause of the plaintiff's damages"; and (4) that "but for defendant's conduct, the plaintiff would have obtained a more favorable result in the underlying transaction than the result" that occurred. Jerry's Enters. v. Larkin, Hoffman, Daly & Lindgren, Ltd., 711 N.W.2d 811, 816, 819 (Minn.2006). If the plaintiff fails to prove even one of these elements, the claim fails. Id. at 816. Because the district court concluded that there were no genuine issues of material fact bearing on its determination that appellants had no attorney-client relationship with Dorsey, it declined to reach the remaining elements of appellants' claims.

Generally, an attorney is liable only to those with whom he has an attorney-client relationship. Marker v. Greenberg, 313 N.W.2d 4, 5 (Minn.1981). But Minnesota courts have recognized exceptions to this strict privity requirement under a third-party-beneficiary theory, under an implied-contract theory, and under a tort theory of representation. Admiral Merchs. Motor Freight, Inc. v. O'Connor & Hannan, 494 N.W.2d 261, 265 (Minn. 1992). Whether an attorney-client relationship exists is...