STAR Centers, Inc. v. Faegre & Benson, C0-00-2075.
| Decision Date | 16 May 2002 |
| Docket Number | No. C0-00-2075.,C0-00-2075. |
| Citation | 644 N.W.2d 72 |
| Parties | STAR CENTERS, INC., Petitioner, Appellant, v. FAEGRE & BENSON, L.L.P., Respondent. |
| Court | Minnesota Supreme Court |
Collins, Buckley, Sauntry & Haugh, P.L.L.P., Patrick T. Tierney, St. Paul, for appellant.
Bassford, Lockhart, Truesdell & Briggs, P.A., Lewis A. Remele, Jr., Charles E. Lundberg, Robin Ann Williams, Minneapolis, for respondent. Heard, considered, and decided by the court en banc.
Appellant STAR Centers, Inc. (STAR), sued respondent Faegre & Benson, L.L.P. (Faegre), claiming that Faegre committed legal malpractice and breached its fiduciary duty by failing to disclose information about Consortium International, Inc. (Consortium), a business from which STAR sought financing. The district court granted Faegre's motion for summary judgment and the court of appeals affirmed. Because the undisclosed information was not material to Faegre's representation of STAR, we affirm.
In 1990, Paul Selle retained Faegre to assist with the organization of STAR. Selle formed STAR to develop an indoor soccer facility. Having found a location for the facility, Selle sought financing for STAR, but had not secured financing as of January 1995.
In January 1995, Consortium retained Faegre. Consortium described itself as a "privately held professional services organization" that performed a variety of financial services for its clients. In 1995, Faegre worked on two matters for Consortium. First, in March 1995, Faegre concluded a review of securities law issues. Second, in early July 1995, Faegre drafted a letter to one of Consortium's clients expressing Consortium's concerns with respect to a press release issued by the client that stated that an agreement regarding a loan had effectively been reached. According to Consortium, the press release did not accurately reflect the state of negotiations. Although Faegre was not working on any matters for Consortium at the end of July 1995, Faegre still considered Consortium a client because its engagement was not limited to specific matters.
In early 1995, Selle learned about Consortium through a loan officer at Mortgages Unlimited. On July 25, 1995, STAR and Consortium negotiated the preliminary terms of a financing agreement. After the meeting, Selle and John Karr, a consultant to and investor in STAR, sought additional information about Consortium.
Selle and Karr learned from Consortium that Consortium had retained Faegre. They decided to question Faegre about Consortium. Selle stated he phoned Andrew Humphrey, a Faegre attorney, to determine whether Humphrey knew anything about Consortium. According to Selle, Humphrey responded that he did not know anything about Consortium, agreed to find out what he could about Consortium, and ultimately responded that "[Faegre] had some smaller dealings with [Consortium], but nothing came up, whether it be bad or good." Karr did not remember whether it was he or Selle who asked Faegre about Consortium, nor did he remember the precise language of Faegre's response. Karr stated, however, that Faegre's response left him and Selle with the impression that "Consortium was, indeed, a legitimate business." Humphrey recalled Selle's inquiry about Consortium. According to Humphrey, he responded by stating that he did not know anything about Consortium and that it would be inappropriate for him to say anything about Consortium if Consortium was Faegre's client. Selle denied that Humphrey made such a statement to him.
In an August 7, 1995, letter to STAR, Gary Gandrud, a Faegre attorney, expressed the terms under which the firm's representation of STAR in connection with its new financing project could continue. Shortly thereafter, Faegre obtained Consortium's and STAR's consent to Faegre's representation of STAR in connection with its financing project.
On August 9, 1995, STAR and Consortium executed a preliminary commitment agreement. A closing scheduled for October 1995 did not take place because Consortium was unable to prepare some documents. Faegre did little or no work on the deal after the closing did not take place. STAR and Consortium rescheduled the closing for December 1995 or January 1996. That closing also did not take place, however, because a shutdown of the federal government prevented STAR from obtaining part of its financing package, a loan from the Small Business Administration.
In January 1996, William Nay contacted Sally Johnson, a Faegre attorney. Nay represented Joseph Kenney, the president and chief executive officer of Cemara Health, Inc. (Cemara). Nay asked Johnson whether Faegre would serve as an escrow agent in an effort to settle a dispute between Consortium and Cemara regarding Consortium's failure to fund a loan. Subject to resolution of possible conflicts, Johnson agreed. Nay had only two or three brief telephone conversations with Johnson on January 10 and 11, 1996. Consortium and Cemara did not reach a settlement agreement. There is no evidence in the record that Faegre was retained to serve as an escrow agent.
Later that month, Kenney wrote two letters1 describing an advance fee scheme operated by Consortium. There is no evidence in the record that Faegre attorneys saw or heard about Kenney's letters before their depositions in this case.
In early February 1996, Consortium contacted James Nicholson, its billing partner at Faegre, and asked whether Faegre would defend it in a lawsuit filed by Denver Golf, Ltd. (Denver Golf), in the United States District Court for the District of Colorado. Nicholson passed the matter to his partners in Faegre's Denver office.
Denver Golf's complaint alleged that Consortium breached a construction loan agreement. The complaint did not allege fraud, nor did it allege that Consortium's refusal was part of a larger pattern of refusals to fund loans. Faegre's conflict check revealed no conflicts. The firm made its first appearance in federal district court on Consortium's behalf on February 12, 1996. In early March 1996, Consortium filed a motion to dismiss or, in the alternative, for summary judgment, arguing that execution of the construction loan agreement was merely a "paper closing" that was done in escrow and was subject to the approval of Consortium's Board of Directors. Because the Board did not approve the loan, Consortium argued the loan agreement never took effect. On June 18, 1996, a United States Magistrate Judge recommended that Consortium's motion be denied.
Although Denver Golf's complaint did not allege fraud, Denver Golf's attorney, Paul Grant, told Faegre attorneys he thought Consortium engaged in fraud. In an affidavit submitted to the trial court in the instant case, Grant described the statements he made while working on the Denver Golf litigation:
Shortly after the time Faegre * * * first appeared in the case and later in written discovery requests, I asked the Faegre * * * attorneys to provide documentation demonstrating that Consortium had funded the projects identified in their promotional literature. I told [a Faegre attorney] that I thought Consortium may have engaged in fraud. I discussed with Faegre * * * attorneys, at a hearing before a United States Magistrate, that I did expect Faegre * * * to produce documents to show that Consortium had actually made the loans described in their literature. Faegre * * * attorneys replied that they were not sure they could comply, since all Consortium loans were covered by confidentiality agreements.
Cathy Lemon, a Faegre attorney who worked on the Denver Golf litigation, stated that Grant requested documentation of Consortium's other deals because he thought that Consortium "didn't have enough money to fund all of the deals [it] had in the pipeline."
On January 24, 1996, Consortium sent to STAR a revised formal commitment agreement. STAR asked Faegre to represent it in connection with its new financing project. On February 26, 1996, the firm sent a letter to STAR to confirm the terms of its representation. STAR and Consortium scheduled the closing for June 28, 1996, and STAR met all conditions to close on that date. On June 19, 1996, Consortium sent a letter to STAR that terminated the loan agreement. Faegre declined STAR's request to represent STAR in an action against Consortium and referred STAR to another law firm.
In August 1996, the Federal Bureau of Investigation (FBI) filed a criminal complaint against Arthur Schuyler Ross, also known as John Ross, who was Consortium's chief executive officer. The complaint alleged that Ross "and others doing business as Consortium * * * have committed and are continuing to commit [wire fraud] by operating an advance fee scheme." The FBI arrested Ross later that month.
In April 1999, STAR filed a complaint against Faegre that alleged that Faegre breached its fiduciary duty and committed legal malpractice by failing to disclose information about Consortium that was material to the law firm's representation of STAR. The district court granted Faegre's motion for summary judgment, holding that the Denver Golf litigation did not constitute a material matter about which Faegre had to advise STAR, that Faegre did not breach any duty to or contract with STAR, and that STAR could not prove that Faegre's conduct constituted the "but for" cause of STAR's damages.
STAR appealed and the court of appeals affirmed. The...
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