Adkins v. Scarlett ( 1998 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
JAMES C. ADKINS,
Plaintiff-Appellant,
v.
ROBERT B. SCARLETT; HOWARD M.
HENESON; HENESON & SCARLETT,
Defendants-Appellees,
No. 96-2354
and
MARY BETH MCNAMARA; HARBOR
BANK OF MARYLAND,
Defendants,
NUTTER FUNERAL HOMES,
INCORPORATED,
Party in Interest.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge.
(CA-94-843-CCB)
Argued: August 13, 1997
Decided: March 3, 1998
Before RUSSELL,* Circuit Judge, HALL, Senior Circuit Judge,
and MICHAEL, Senior United States District Judge for the
Western District of Virginia, sitting by designation.
_________________________________________________________________
*Judge Russell heard oral argument in this case but died prior to the
time the decision was filed. The decision is filed by a quorum of the
panel pursuant to 28 U.S.C. § 46(d).
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: Paul Howard Zukerberg, Washington, D.C., for Appel-
lant. David John Wildberger, ILIFF & MEREDITH, P.C., Baltimore,
Maryland, for Appellees. ON BRIEF: Kathleen Howard Meredith,
ILIFF & MEREDITH, P.C., Baltimore, Maryland, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
This case arises out of a Byzantine chain of events focused around
an attempt to purchase a funeral home in Baltimore, Maryland. The
record before the court is simply not sufficient to permit a full under-
standing of all of the maneuvers in which the parties have engaged.
The following recitation of facts is drawn, to the degree possible,
from that record.
While this appeal is from actions of the district court in this suit,
it is necessary for an understanding of the case to recite the bank-
ruptcy court proceedings, together with various ancillary activities
and actions.
The Nutter Funeral Home ("Nutter") provided mortuary services to
the Baltimore community for many years. Nutter, then owned by
Edward R. Butler, was sold in May 1987 to Rhema Development
Corporation ("Rhema"), owned by the Reverend Franklin Showell
and his wife, Ella Showell. The terms of sale included Mr. Butler tak-
ing back a promissory note for $389,000 ("the Note"), to secure which
note, Rhema and the Showells pledged one hundred percent of the
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shares of stock in Nutter back to Mr. Butler. Thus, at the closing of
the sale, Rhema owned one hundred percent of the shares of stock in
Nutter, the stock being burdened by what appears to be a lien to
secure the payment of the note. Butler in turn owned the note, and
such security as a lien on all the shares of stock of Nutter may have
afforded him. Shortly after the sale, Rhema and the Showells ceased
to pay on the Note, and Mr. Butler sued in state court to enforce the
contract of sale of May 1987.
In March of 1990, Rhema and the Showells each filed for protec-
tion under Chapter 11 of the Bankruptcy Code. Mr. Butler's enforce-
ment action to enforce the contract was stayed automatically. In July
1990, Mr. Butler and the Palladium Corporation ("Palladium"), of
which Mr. Butler was an insider, also filed for Chapter 11 protection.
Mr. Butler retained Robert B. Scarlett and his firm, Heneson and
Scarlett, to represent Butler and Palladium in bankruptcy court.
James C. Adkins, previously the owner of a funeral home in the
District of Columbia, saw Nutter as a potentially profitable operation
and, in late 1990, offered Mr. Butler $20,000 in cash for the shares
of stock in Nutter on which Mr. Butler held the lien securing the note.
Those shares were held in the bankruptcy estate of Rhema and the
Showells, subject to the lien, and had been declared worthless by the
bankrupt Rhema and Showells. The record does not disclose by what
mechanism the conveyance of ownership in the stock would have
been effected, but the details of this offer are of little moment, since
no sale resulted from this Adkins offer to Mr. Butler. In persistence,
Mr. Adkins met, in early 1991, with Mr. Scarlett, counsel for Mr. But-
ler, to discuss a purchase of Nutter, although Mr. Adkins had already
retained the firm of Frank, Bernstein, Conaway, and Goldman to
assist in the purchase of Nutter. It does not appear that the Frank firm
participated in any way in this meeting between Messrs. Adkins and
Scarlett. At that time, Mr. Adkins had only $250,000 to offer for Nut-
ter. Mr. Scarlett suggested that Mr. Adkins hire Mr. Scarlett to
develop a competing reorganization plan for the Butler estate. In
return for this plan preparation, Mr. Adkins agreed to pay both his
own legal fees and those of Mr. Butler. The letter of retainer sent
from Mr. Scarlett to Mr. Adkins confirms that Mr. Adkins retained
Mr. Scarlett for advice as to "how [Mr. Adkins] might go about pur-
chasing the funeral home license and land involved in [the Rhema,
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Showell, and Butler/Palladium] bankruptcy proceedings." Joint
Appendix 137. It does not seem that any question of the propriety of
Mr. Scarlett's simultaneous representation of both Mr. Adkins and
Mr. Butler arose at this meeting, although the strong potential for
adverse positions of the parties must have been apparent. Mr. Scarlett
eventually received a $5,000 retainer for his services, of which
retainer fee Mr. Scarlett failed to inform the bankruptcy court in Mr.
Butler's estate.
On January 18, 1991, Mr. Scarlett filed a motion for relief from the
automatic stay of the Butler state court suit imposed by the Rhema
and Showell bankruptcy. Mr. Scarlett indicated that his goal was to
seek recovery of Nutter or the Nutter stock for the benefit of Mr. But-
ler's unsecured creditors.
Mr. Adkins and his business associate, Nathaniel Sims, then came
to an oral settlement with Mr. Butler and the Showells in which Mr.
Adkins and Mr. Butler agreed not to contact any creditor of either the
Showells or Rhema and Mr. Butler agreed to release all liens against
the shares of Nutter, in exchange for $350,000 paid by the Showells
and Rhema, to be divided between Mr. Adkins and Mr. Butler. It does
not appear that Mr. Scarlett stated to the bankruptcy court that Mr.
Scarlett was simultaneously representing both Mr. Butler and Mr.
Adkins. The parties agreed to the settlement plan on the record before
Judge Derby on March 1, 1991. Joint Appendix 637-38. This settle-
ment would free the shares of stock in Nutter and leave those shares
in the unencumbered ownership of the bankrupt estates of Rhema and
the Showells. For several weeks after the meeting with Judge Derby,
the parties were unable to arrive at a written settlement agreement to
which Mr. Adkins, Mr. Butler, and the Showells could agree.
On May 7, 1991, Mr. Scarlett forwarded a proposed written settle-
ment agreement to the attorney for the Showells and Rhema, Marc
Kivitz.* In the cover letter to the proposed agreement, Mr. Scarlett
_________________________________________________________________
*The record does not disclose any date for the acceptance of a final
agreement by Mr. Butler, Rhema, and the Showells. A final such agree-
ment must have been reached some time before August 1991 since in
that month Rhema and the Showells defaulted in the payments required
by the settlement agreement.
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indicated that he had "instructed Mr. Adkins that he would have to
retain separate counsel," because Mr. Scarlett"perceived a conflict
developing." Joint Appendix. However, on June 10, 1991, Mr. Scar-
lett billed Mr. Adkins, in a bill including work performed after the
May 7, 1991 letter to Mr. Kivitz. Moreover, on June 28, 1991, Mr.
Scarlett wrote to Mr. Adkins requesting payment of a bill for
$7,458.81 and stating, "Mr. Kivitz filed, without my approval, a
Notice of Settlement. I promptly filed an objection to the Notice, rais-
ing those objections which you set forth in our conversations. I proj-
ect that the Bankruptcy court will schedule a hearing on our
objection." Joint Appendix 853. In the meantime, Mr. Adkins con-
sulted numerous attorneys regarding a purchase of Nutter stock and
real estate. He also continued to be represented by Frank, Bernstein,
Conaway, and Goldman.
On July 17, 1991, the bankruptcy court approved the lift stay settle-
ment, to which Mr. Adkins had not agreed, in the Rhema and Showell
bankruptcies. No settlement had been filed at this time in Mr. Butler's
bankruptcy proceeding, though it would appear that approval of this
settlement by the bankruptcy court in the Butler bankruptcy would
have been highly desirable, if not necessary. In August 1991, Rhema
and the Showells defaulted on the balance of their $350,000 settle-
ment payment. Although the settlement agreement contained a default
clause granting certain remedies to the injured party -- here, Mr. But-
ler -- no action to invoke those remedies was undertaken. Rather, the
parties to the settlement allowed Rhema and the Showells additional
time to gather the necessary funds to fulfill their obligations under the
settlement agreement. At a meeting held on October 15, 1991, Mr.
Butler agreed to release any lien or other claim to the shares of stock
in Nutter in exchange for immediate payment of the remainder
$350,000 settlement proceeds from Mr. Showell. These funds were
paid over but not deposited into the Butler bankruptcy estate, as the
July 1991 settlement agreement filed in the Showell and Rhema bank-
ruptcies had arranged. Instead, Mr. Butler met with Mr. Adkins on
October 16, 1991, at which time the two split the funds provided by
Rhema and Showell for the shares of Nutter stock: Mr. Butler retained
a check for $150,000 and provided Mr. Adkins with the check for
$100,000, presumably by agreement between them, though it seems
also that at least the sum of $250,000 thus divided should have gone
to the bankruptcy estate as an asset in that estate. Since the settlement
5
agreement had not been presented to the bankruptcy court in the But-
ler bankruptcy, knowledge of this transaction did not come to the
attention of the bankruptcy court in Mr. Butler's bankruptcy.
The conclusion of these transactions thus left Rhema and the Sho-
wells bankruptcy estates as owners of the stock of Nutter, free of any
Butler lien or other Butler claim.
On October 17, 1991, Mr. Scarlett filed a Notice of Settlement in
the Butler estate. As with the Rhema and Showell bankruptcy settle-
ment, the Notice indicated that all settlement funds received in the
Butler estate would be placed in a separate escrow account. However,
on November 11, 1991, Mr. Scarlett learned that the settlement funds
had been disbursed on October 16, 1991. Mr. Scarlett wrote to Mr.
Butler two days later requesting that the funds be placed into the
escrow account immediately. On that same day, Mr. Butler terminated
Mr. Scarlett's representation.
Mr. Scarlett filed an emergency motion and a complaint against
both Mr. Butler and Mr. Adkins seeking a court order directing the
payment of the settlement funds into the court's escrow registry of the
settlement funds. On November 18, 1991, the court ordered Messrs.
Adkins and Butler to pay the settlement funds into the escrow
account. Neither complied and on June 2, 1992, the bankruptcy court
entered an Order for Civil Contempt with a judgment in the amount
of $350,000 plus interest and attorneys' fees against Messrs. Adkins
and Butler, jointly and severally. Mr. Adkins appealed but said appeal
was dismissed as untimely.
On April 22, 1993, the bankruptcy court issued a Show Cause
Order directing Messrs. Adkins and Butler to show cause why they
should not be incarcerated for their refusal to comply with the
November 18, 1991 and the June 2, 1992 orders. After a hearing, the
court ordered both defendants to be incarcerated until they purged
themselves of civil contempt. The United States District Court of
Maryland upheld this contempt order. The defendants eventually
purged themselves of contempt, Mr. Butler by testifying as to the dis-
position of the funds he had retained, and Mr. Adkins by returning the
funds he had obtained from Mr. Butler.
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Mr. Adkins brought the current suit against Mr. Scarlett in January
1994, alleging professional negligence, breach of contract, fraud and
deceit, and breach of fiduciary duty arising out of Mr. Scarlett's rep-
resentation of Mr. Adkins in Mr. Adkins's attempts to purchase Nut-
ter. The plaintiff-appellant claimed that his damages included legal
fees paid to Mr. Scarlett, the value of Nutter (which he asserts he
would own but for the perfidy of Mr. Scarlett), and the difference
between the $350,000 Mr. Showell eventually paid for the shares of
Nutter and the $20,000 Mr. Adkins offered Mr. Butler for those same
shares.
On April 28, 1995, the district court granted partial summary judg-
ment in favor of the appellee as to any losses sustained by appellant
after Mr. Scarlett ceased to represent him because the damages then
sustained were too remote from Mr. Scarlett's representation in the
Nutter matter. Discovery after the district court's first grant of sum-
mary judgment revealed additional evidence, and the appellee filed a
second motion for summary judgment. On August 20, 1996, the dis-
trict court granted summary judgment for the appellee on all remain-
ing matters, ruling that the appellant had failed to create a genuine
issue of material fact as to whether the appellee was the proximate
cause of claimed damages; that appellant's retention of numerous
attorneys in the matter broke any possible causal link between the acts
of the appellee and the damages claimed; and that, as to the attorneys'
fees paid to Scarlett, the bankruptcy court in the Butler estate was the
proper forum in which to seek return of said fees.
On review, Appellant argues that the district court erred in granting
summary judgment both in April 1995 and in August 1996. The court
reviews the grant of summary judgment in the trial court de novo. See
Stone v. Liberty Mut. Ins. Co., 105 F.3d 188, 191 (4th Cir. 1997).
In Maryland, a plaintiff must allege three elements in a claim for
attorney malpractice: "(1) the attorney's employment, (2) his neglect
of a reasonable duty, and (3) that such negligence resulted in and was
the proximate cause of loss to the client." Ferguson v. Cramer, 695
A.2d 603, 605 (Md. Ct. Spec. App. 1997), citing Kendall v. Rogers,
31 A.2d 312 (1943). The connection between the actions of the defen-
dant and the injury must be legally sufficient to allay policy consider-
ations about the reasonable limits of responsibility for misconduct.
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See, e.g., Peterson v. Underwood, 264 A.2d 851 (Md. 1970). Proof
of causation must also be established to a "probability." Sakaria v.
Trans World Airlines, 8 F.3d 164, 172 (4th Cir. 1993). Sakaria
explains that such probability is required "precisely to guard against
raw speculation." Id. at 172-73.
Appellant argues first that the district court erred in granting defen-
dant summary judgment in April 1995 on the claims involving dam-
ages incurred by Mr. Adkins' confrontation with the bankruptcy
court. The district court found no proximate cause between Mr. Scar-
lett's representation and Mr. Adkins' interaction with the bankruptcy
court. Mr. Scarlett last billed Mr. Adkins in June 1991 and Mr.
Adkins' confrontations with the bankruptcy court began in November
1991. Mr. Adkins refusal to comply with the court's order to tender
the $100,000 settlement money to the escrow account was purely his
own action and did not arise in any way out of his relationship with
Mr. Scarlett. In fact, Mr. Adkins had other legal representation at this
time. Thus, the district court correctly determined that Mr. Adkins
failed to establish a legally cognizable link between Mr. Scarlett's
actions and Mr. Adkins' alleged injuries after the filing of the Com-
plaint to Turnover Certain Estate Monies to Court's Escrow Account.
The district court appropriately granted summary judgment to the
defendant.
Mr. Adkins also appeals the August 1996 order in which the dis-
trict court granted summary judgment on appellant's claims for dam-
ages equal to the value of Nutter Funeral Homes, the costs of legal
services by Mr. Scarlett, and the $330,000 difference between what
appellant offered for the Nutter shares and what the Showells and
Rhema ultimately paid for them.
Under Maryland law, expert testimony may be necessary to prove
a violation of the standard of reasonable care "where the common
knowledge or experience of laymen is [not] extensive enough to rec-
ognize or infer negligence from the facts." Homa v. Friendly Mobile
Manor, Inc., 612 A.2d 322, 350-51 (Ct. Sp. App. Md. 1992), citing
Fishow v. Simpson, 462 A.2d 540 (1983). In the instant case, the intri-
cacies of bankruptcy litigation and attorney duties of representation
were sufficiently complex to require expert testimony regarding the
possibility of a violation of the standard of reasonable care. Neither
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expert produced by appellant indicated causation between the alleged
malpractice and the failure to purchase to any degree of certainty.
Roger M. Whelan, a former bankruptcy judge, specifically stated that
he could not "accurately assess [whether Mr. Adkins would have been
successful in procuring Nutter but for Mr. Scarlett's breaches in the
standard of care] based on the statement of facts." Joint Appendix 19.
Mr. Adkins never had the $330,000 or $2,000,000 (the estimated
value of the business) which he seeks as damages in this action and
he cannot show with any certainty that the business could have been
obtained for the significantly lower funds that he did have. Without
expert testimony indicating that the alleged breach of care was the
probable cause of the failure to purchase the funeral home, summary
judgment was appropriate.
The district court also granted summary judgment in favor of the
appellee as to the retainer fee paid by Mr. Adkins to Mr. Scarlett. The
district court found that the appellant should have filed in the bank-
ruptcy estate of Mr. Butler the claim for the return of the amount of
the retainer fee. As the retainer and legal fees were caused in part by
Mr. Scarlett's representation of Mr. Butler, those fees could have
been returned to Mr. Adkins from the Butler bankruptcy. Mr. Whelan,
a former bankruptcy judge, testified that "there is a likelihood" that
the bankruptcy court would have returned the fees to Mr. Adkins had
Mr. Adkins complied with the court's turnover order. Therefore, Mr.
Adkins failure to file a claim at the proper time, in the proper forum,
caused his loss of said funds. The grant of summary judgment by the
district court is affirmed as to the legal fees as well.
For the aforementioned reasons, the district court's order will be
affirmed in its entirety.
AFFIRMED
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