Sandpoint Cattle Co. v. Craig (In re Sandpoint Cattle Co.)
| Citation | 553 B.R. 704 |
| Decision Date | 22 July 2016 |
| Docket Number | Adversary No.: 14–04052–SKH,Bankruptcy No.: 13–40219 |
| Parties | In re: Sandpoint Cattle Company, LLC, Debtor, Sandpoint Cattle Company, LLC, Plaintiff, v. Robert Craig, Robert F. Craig P.C. d/b/a Craig/Bednar Law P.C., and Anna Bednar, Defendants. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Nebraska |
Anna M. Bednar, Craig/Bednar Law, Omaha, NE, for Debtor.
Plaintiff Sandpoint Cattle Company, LLC initiated this adversary proceeding, alleging a legal malpractice claim against its former attorneys, Defendants Robert Craig, Robert F. Craig P.C. d/b/a Craig/Bednar Law P.C. and Anna Bednar. It also objected to the Final Application for Allowance of Compensation and Reimbursement of Expenses filed by Craig and Craig/Bednar Law in the underlying bankruptcy case. Doc. 629; Doc. 640. The Court consolidated the adversary proceeding and contested matter for trial. For the reasons stated below, the Court finds in favor of Sandpoint and awards damages in the sum of $1,831,827.63. The Court will enter a separate order ruling on Craig/Bednar Law's fee application.
Plaintiff Sandpoint Cattle Company, LLC filed a Complaint in October 2014, alleging Defendants breached the standard of care for attorneys representing corporate debtors in reorganization proceedings. Sandpoint amended its Complaint on October 23, 2014, and sought leave to amend it a second time in January 2015. The Court granted Sandpoint's Motion to Amend in part and denied it in part. Doc. 30.1 Sandpoint filed its Second Amended Complaint on March 10, 2015.
In its Second Amended Complaint, Sandpoint alleged that Craig informed Sandpoint that its debt to a secured creditor would be reduced by the appraised value of the cattle if Debtor abandoned its cattle to the creditor. Sandpoint claimed it relied on Craig's advice and abandoned the cattle. Sandpoint also alleged that Craig failed to negotiate agreements ensuring Sandpoint received appropriate debt offset for the abandoned cattle and that Craig failed to recommend an orderly liquidation to maximize livestock sale value. Sandpoint claims Craig and the firm's negligence resulted in approximately $5,000,000 in damages. In addition, Sandpoint alleged that Craig and his firm breached their contract with Sandpoint by failing to seek Court approval of attorney's fees before billing Sandpoint and accepting payments. Sandpoint also asserted Craig failed to comply with ethical requirements governing payments to attorneys from third parties. Sandpoint seeks disgorgement of all the fees it paid Craig and Craig/Bednar Law as a result of this breach of contract and their alleged professional malpractice.2
Craig and Craig/Bednar Law filed an Answer to the Complaint, denying Sandpoint's negligence allegations and seeking dismissal of the Complaint. They affirmatively alleged that the Complaint fails to state a cause of action upon which relief may be granted, Sandpoint failed to mitigate its damages, Sandpoint lacks standing to recover fees paid by third parties and Sandpoint's claims are barred by collateral estoppel and/or res judicata. In addition, Craig and Craig/Bednar Law claimed that Neb.Rev.Stat. § 25–21,185.07 et seq.
bars Sandpoint's negligence claims. Specifically, they affirmatively alleged Sandpoint's contributory and/or comparative negligence, including its failure to follow legal advice, was in an amount equal to or greater than the negligence of Craig and Craig/Bednar Law, if any. Craig and Craig/Bednar Law filed substantially similar answers to Sandpoint's First and Second Amended Complaints.
Although she was not named in either the Complaint or First Amended Complaint, Anna Bednar filed a separate answer to the First Amended Complaint on February 20, 2015. Her responses and defenses were included in the joint answer Defendants filed in response to the Second Amended Complaint on March 24, 2015.
Sandpoint filed Plaintiff's Motion for Leave to File Third Amended Complaint and Motion to Allow Intervention on March 31, 2015. Doc. 36. Defendants objected. Doc. 38. After a hearing, the Court denied both motions.
The day before trial, Sandpoint filed a Motion for Leave to File Third Amended Complaint, this time seeking to add Anna Bednar as a named defendant. It requested no other amendments to its Complaint. Doc. 624. The Court granted the motion on the last day of trial. Doc. 693.
Several weeks before Sandpoint initiated this adversary proceeding, it filed an objection to the Final Application for Allowance of Compensation and Reimbursement of Expenses filed by Craig and Craig/Bednar Law. In its objection, Sandpoint alleged that Craig and the firm violated the standard of care for an attorney representing corporate debtors in reorganization proceedings based on similar facts as those alleged in the adversary proceeding and claimed that they did not provide services that benefitted the estate. Sandpoint requests that the Court disallow all of the fees requested and order disgorgement of fees previously allowed and paid to Craig/Bednar Law. Doc. 640 at 5. As noted above, the Court consolidated the objection to the application for compensation and adversary proceeding for trial but, due to the length of this Order, the Court entered a separate order ruling on the fee application.
In the late 1990s, John and Laurie Widdowson operated a cattle ranch in south central Nebraska, where they raised an average of 200 to 300 head of commercial livestock.3 They began selectively breeding registered Angus cattle in 1998. The Widdowsons invested in a few registered Angus cattle, sold the calves and expanded the operation from there. They named their business “Sandpoint Cattle Company.”
John Widdowson had a knack for selecting good quality “genetics.” As the Sandpoint Cattle Company operation grew, Widdowson acquired a reputation for breeding and selling quality livestock. He met Raymond Alger4 in 1999 or 2000 at a cattle sale. Widdowson impressed Alger, who began seeking Widdowson's advice on registered Angus cattle purchases. Sometime between 2000 and 2004, Widdowson began representing Alger at cattle sales.
In 2004, the Widdowsons sold Sandpoint Cattle Company and its assets, including cattle, embryos, semen and equipment to Alger. Sandpoint did not own land at the time. Alger hired Widdowson to manage the day-to-day ranch operation. He also hired Laurie Widdowson, whose role with the business evolved from bookkeeping, preparing the sale catalog and sales to work primarily focused on sales.
Alger purchased land in Lodgepole, Nebraska, in the spring of 2004 and moved the Sandpoint operation to the Lodgepole ranch on May 5, 2004. Initially, the Lodgepole ranch included approximately 7,300 acres, but Alger acquired more land over time. In 2008, the Lodgepole ranch comprised over 10,000 acres.5
Sandpoint's breeding operations grew after the move to Lodgepole. The focus of the business was operating a registered Angus seed stock cattle operation; namely, breeding Angus cattle and selling “genetics” to buyers around the world. Specifically, the ranch produced purebred Angus bulls to sell to commercial ranches to improve herd quality. It also sold bull semen and fertilized embryos from the purebred cattle.
In 2007, Widdowson met Michael Deutsch, a financial and tax accountant, who invested in a number of businesses, including several in the agricultural industry. Deutsch became familiar with Angus seed stock operations through his active involvement and investment in Rock River Ranch, LLP, beginning in 2004. He assisted the manager of the Rock River Ranch operation and performed some accounting and bookkeeping functions. Deutsch is a member of the American Angus Association and regularly attends and tracks Angus sales.
Based on circumstances unrelated to the success of the cattle operation, Widdowson believed Alger might entertain an offer to buy the Lodgepole ranch, Sandpoint Cattle Company and its assets. Widdowson learned that Deutsch and other investors may be interested in buying the operation. In January 2008, Widdowson arranged a meeting between Alger and Deutsch to discuss a potential sale. Deutsch and other investors, including Clark A. Compher, Jr., George Londos and Kurt Waldvogel, reached an agreement with Alger for the purchase of the ranch, 2,420 head of livestock and other assets. The parties finalized their agreement in November 2008. Deutsch and the other investors formed Sandpoint Cattle Company, LLC in 2008.6
Widdowson worked with and for Alger until Alger sold the ranch to the new investors. As the District Court found in its ruling on Sandpoint's objections to Alger's claims, Widdowson represented Alger until August 1, 2008, and Sandpoint after that date. Widdowson was its sole managing member until sometime after March 2014. John and Laurie Widdowson were the only members on the Board of Managers at all relevant times.7 Doc. 367.
Alger financed part of the purchase price for chattel property through a master carryback loan in the sum of $10,800,000. Id. The Widdowsons, as representatives of Sandpoint, signed the promissory note for $10,800,000 and granted a security interest in all the assets of Sandpoint, both real and personal. Doc. 610. Pursuant to the agreements, Sandpoint promised to make annual payments of $600,000 from 2008 through 2012 and $800,000 from 2013 through 2016. Sandpoint failed to make the $600,000 payments in 2009 and 2010, and failed to pay $150,000 on December 31, 2011. Id. These defaults prompted Sandpoint to enter forbearance agreements with Alger. In January 2013, Alger served a notice of replevin, even though Sandpoint sent payments in an effort to cure its default.
After receiving the notice of replevin, Sandpoint representatives consulted Attorney Robert Routh, who assisted Sandpoint in its efforts to resolve the debt to Alger.8 Alger...
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