National Bank Of Canada v. Hale & Dorr, Llp
| Decision Date | 28 April 2004 |
| Docket Number | 200000296 |
| Citation | 2004 MBAR 215 |
| Parties | National Bank of Canada et al.[1] v. Hale & Dorr, LLP |
| Court | Massachusetts Superior Court |
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh):Connolly, J.
The plaintiffs, National Bank of Canada, LaSalle Bank, N.A., Key Corporate Capital, Inc., and First Union National Bank (collectively, "Banks") brought this action against the defendant, Hale & Dorr, LLP ("Defendant") alleging claims of negligent misrepresentation (Count I) negligence (Count II), misrepresentation (Count III), breach of contract (Count IV), and violation of G.L.c. 93A, §11. These claims are based on an opinion letter that the Defendant rendered pursuant to a credit agreement between its client, Whistler Corporation of Massachusetts ("Whistler") and the Banks. The Banks are seeking damages of $12,946,506.04 plus interest accruing after June 5, 2001. This case is before the court on the Defendant's summary judgment motion as to Counts I, II, III, IV, and V and the Banks' cross-motion for summary judgment motion as to Counts I, II, III, and IV. For the following reasons, the Defendant's motion is ALLOWED in part and DENIED in part, and the Banks' cross-motion is DENIED in full.
On or about November 7, 1996, the National Bank of Canada issued a Draft Commitment Letter to Whistler that set forth terms and conditions pursuant to which the National Bank of Canada would provide Whistler with a Revolving Credit Facility and Term Loan Facility. At the time of the Draft Commitment Letter, Whistler was a manufacturer and seller of, among other products, radar detectors. The Draft Commitment Letter[2] had a term sheet annexed to it which contained conditions, one of which was that Whistler confirm that "no material, pending or threatened litigation of proceeding [existed] in court or any administrative forum."
On February 14, 1997, the Banks executed a Revolving Credit and Term Loan Agreement ("Credit Agreement") with Whistler under which the Banks agreed to provide Whistler with a loan in the aggregate of $55,000,000.[3] Attorneys from the Defendant represented Whistler with respect to the Credit Agreement. Within this Credit Agreement, Whistler provided representations and warranties to the Banks, including the representation that
There are no actions, suits, proceedings or investigations of any kind pending or, to the knowledge of [Whistler], threatened against [Whistler] or any of its Subsidiaries before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, materially adversely affect the properties, assets, financial condition or business of [Whistler] or materially impair the right of [Whistler] and its subsidiaries to carry on business substantially as now conducted by it.á.á.
As of the date of that representation and warranty, Whistler was a defendant in Cincinnati Microwave v. Whistler Corp of Mass., Case No. 96-CV-647 ("CMI Litigation"), a civil action which had been pending in to United States District Court for the Southern District of Ohio since June 1996.[4] Attorneys David B. Bassett, Donald R. Steinberg, and William F. Lee ("CMI Litigation Attorneys"), all of whom were partners for the Defendant, applied for admission and were admitted pro hac vice to serve as Whistler's counsel for the CMI Litigation in September 1996.[5] The CMI Litigation Attorneys were not the same Defendant attorneys who represented Whistler with respect to the Credit Agreement.
The Credit Agreement provided that an opinion letter from Whistler's counsel was a condition precedent to making the loan. Specifically, paragraph 10.19 of the Credit Agreement stated, "[e]ach of the [Banks] shall have received a favorable opinion addressed to the [Banks] and dated as of the Closing Date, in form and substance satisfactory to the [Banks] from [the Defendant]." The Defendant provided the Banks with an opinion letter ("Opinion Letter"), dated February 14, 1997, drafts of which both sides had reviewed and modified[6] before that date.[7] The Opinion Letter contained a paragraph that stated,
To our knowledge, there is no action, suit, proceeding or investigation pending or threatened against [Whistler] before any court or governmental department, which could prevent the consummation of the transactions contemplated by the Credit Documents or purports by its terms to challenge the validity or enforceability of the Credit Documents or any action taken or to be taken in connection with the transactions contemplated thereby, or which, if adversely determined, could have a material adverse effect on the business, condition, affairs or operations of [Whistler] or any material impairment of the right or ability of [Whistler] to carry on its operations as now conducted.
"For the purposes expressed" in the Opinion Letter, the Defendant examined twenty-seven items set forth in a list in the Opinion Letter. Among those items were "such.á.á. documents, instruments and certificates.á.á. as [the Defendant].á.á. considered necessary for purposes of this opinion."
The Opinion Letter did not mention the CMI Litigation. The Defendant attorneys who represented Whistler with respect to the Credit Agreement did not ask the CMI Litigation Attorneys about the CMI Litigation before signing the Opinion Letter. The Banks did not find out about the CMI Litigation until May or June 1999.
The Banks entered into a Forbearance Agreement with Whistler under which the Banks agreed to forbear from exercising their remedies under the Credit Agreement. On March 6, 1998, Whistler's equity investors provided a $7,000,000 Letter of Credit drawn on Mellon Bank; this Letter of Credit provided the Banks with additional collateral for their loans to Whistler. The Banks could draw on this $7,000,000 Letter of Credit. The Banks then extended the Forbearance Agreement until May 1999.[8] On or about May 17, 1999, the Banks drew down the entire $7,000,000 Letter of Credit.
Whistler filed a Chapter 11 Petition on or about May 27, 1999. As part of those bankruptcy proceedings, the Bankruptcy Court supervised the auction sale of Whistler's remaining assets. Escort, Inc.,[9] the owner of the patent at issue as well as a plaintiff in the CMI Litigation, and George W. Fels, the liquidating Trustee of the plaintiff in the CMI Litigation, took steps to make prospective purchasers aware of the CMI Litigation and of the fact that a purchaser of the radar division would be liable for Whistler's past infringement of the patent at issue.[10]
With respect to the Defendant's opinion regarding litigation set forth in the Opinion Letter, the Banks allege that the Defendant never engaged in any evaluation of potential outcomes, never analyzed the range of potential losses, never considered the financial impact on Whistler if the CMI Litigation were unsuccessful, and never made any judgments about the prospects of winning or losing the litigation. The Defendant asserts, however, that in connection with its legal representation of Whistler, the Defendant engaged in services that included evaluating potential outcomes, analyzing potential losses, forming judgments about the prospects of winning or losing the CMI Litigation, and considering the financial impact on Whistler if it did not prevail in the CMI Litigation. Further, the CMI Litigation Attorneys did make such evaluations and verifications both before and after the Banks' lawsuit, and the Defendant conducted due diligence for the purposes of paragraph 7 of the Opinion Letter.
The Banks allege that if Whistler lost the CMI Litigation, it would have had a material adverse effect on Whistler. The Defendant disputes this allegation; if the plaintiff in the CMI Litigation had won, there would not have been a permanent injunction or a $230,000,000 judgment. Therefore, the Defendant did not err in excluding the CMI Litigation from the Opinion Letter because the CMI Litigation could not have had a material adverse effect on Whistler. The Defendant's expert, Attorney Lee Bromberg ("Attorney Bromberg") stated in his affidavit that the Civil Litigation would not have had a material adverse effect on Whistler. Conversely, the Banks' expert, Richard Clarke ("Clarke") stated that the Banks would not have lent the money to Whistler if they had known about the CMI Litigation. Interrogatory responses that both the Defendant and the Banks included as part of their motions serve as further support for these allegations. There is therefore a genuine issue of material fact as to the effect of the CMI Litigation.
The Banks claim that Attorney C. Hall Swaim, a partner at Defendant, confirmed that the CMI Litigation chilled the sale of Whistler's radar division and reduced the interest and bids as to certain companies. The Defendant denies that there is any admissible evidence supporting this contention.
The parties also contest the amount of damages the Banks are entitled to if they prevail. The Banks are seeking damages from the Defendant in the amount of $12,946,506.04, plus interest accruing as of June 5, 2001. The Banks allege that this amount represents the principal, interest, and fees owed to the Banks under all written agreements with Whistler; this amount also includes a $7,000,000 balance on the revolving loan. The Defendant alleges that this amount does not consist of unpaid fees and balances owed because $1,620,000 was the deficiency Whistler owed the Banks under the loan. Moreover the Defendant argues that the...
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