Hopper v. Frank ( 1994 )

United States Court of Appeals,
Fifth Circuit.
No. 93-7483.
Lewis C. HOPPER, Individually and as General Partner of Gulf Coast Television, Ltd., and Joe
Sanderson, Plaintiffs-Appellants,
v.
Harvey FRANK, et al., Defendants-Appellees.
March 15, 1994.
Appeal from the United States District Court for the Southern District of Mississippi.
Before JOLLY, WIENER, and EMILIO M. GARZA, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
This appeal is from a summary judgment for the defendants on a legal malpractice claim. The
plaintiffs, in their individual capacities, sued the defendant law firm for malpractice in connection with
work the law firm did for their limited partnership, which is now in bankruptcy. We hold that the
plaintiffs lack standing to bring this suit because they fail to establish an attorney-client relationship
in their individual capacities separate from their partnership. We therefore affirm the judgment of the
district court.
I
Lewis Hopper and Joe Sanderson were the majority stockholders of Four-O, Inc., a
Mississippi corporation formed in 1981. Sometime prior to 1986, Hopper and Sanderson decided
to have Four-O, Inc. raise the capital necessary to construct a television station in southern
Mississippi through a limited partnership vehicle. Then, in 1986, Hopper and Four-O, Inc. formed
the limited partnership, Gulf Coast Television, Ltd. ("Gulf Coast") and had the partnership purchase
all of the assets of Four-O, Inc. Hopper was a general partner and Four-O, Inc. was the managing
general partner of Gulf Coast. Gulf Coast engaged Harvey Frank, an Ohio resident, and his law firm,
Benesch, Friedlander, Copelan & Aronoff ("the Benesch Firm"), an Ohio general partnership, for the
purpose of preparing public offering documents. In 1987, the attempted public offering of limited
partnership interests in Gulf Coast was unsuccessful. In 1988, Four-O, Inc. d/b/a Gulf Coast filed
a voluntary bankruptcy petition.
II
In 1988, Hopper, Sanderson, and Gulf Coast filed a legal malpractice suit against Frank and
the Benesch Firm (collectively, the "Benesch Firm") in Mississippi state court. Hopper and
Sanderson claimed that in addition to the $4,000,000 damages suffered by Four-O, Inc. d/b/a Gulf
Coast, they had suffered separate damages in their individual capacities of $4,000,000 each. The
three plaintiffs alleged that the Benesch Firm's delay in providing the final public offering documents
did not give the plaintiffs sufficient time to sell the limited partnership interests. The plaintiffs argue
that this delay by the Benesch Firm thus caused the failure of the offering and their consequent
financial losses. On August 12, 1992, the Benesch Firm removed to federal court on the basis of
diversity jurisdiction pursuant to 28 U.S.C. § 1332.
On March 15, 1993, the district court entered summary judgment for the Benesch Firm
against Gulf Coast and against Hopper and Frank as individuals. First, the district court reasoned that
Gulf Coast's $4,000,000 claim was probably part of Four-O, Inc.'s bankruptcy estate, which only the
bankruptcy trustee could bring. Second, the district court reasoned that two letters dated in 1986
made it clear that despite Hopper's and Sanderson's bare assertions in their affidavits that they had
employed the Benesch Firm as individuals, the attorney-client relationship was between the Benesch
Firm and Gulf Coast only; thus, any malpract ice claim arising out of that relationship could be
brought by Gulf Coast only. In short, Hopper and Sanderson had no standing to sue. On March 29,
Hopper and Sanderson filed a motion to reconsider or for a new trial. In support of their alternative
motions, Hopper and Sanderson offered correspondence dated in 1985 between Hopper and the
Benesch Firm regarding the public offering and Gulf Coast and claimed the need for more discovery.
On June 23, the district court entered an order denying both motions reasoning that it had ruled on
the summary judgment based t he evidence before it at that time and that the motion for further
discovery was untimely. On July 22, Hopper and Sanderson filed a joint notice of appeal; Gulf
Coast, however, did not join in this appeal.1
III
On appeal, Hopper and Sanderson contend that the district court erred in granting summary
judgment to the Benesch Firm on the grounds that there was no attorney-client relationship between
them, as individuals, and the Benesch Firm that encompassed the allegedly inadequate services. Thus,
Hopper and Sanderson contend that the district court erred in concluding that Hopper and Sanderson
lacked standing to sue.
An attorney-client relationship provides standing for a legal malpractice suit.2 See Singleton
v. Stegall, 580 So.2d 1242, 1244 (Miss.1991). The existence of an attorney-client relationship is
determined under state law.3 Mississippi adheres to the general rule that an attorney-client
relationship arises when:
(1) A person manifests to a lawyer the person's intent that the lawyer provide legal services
for the person;
and
1
On appeal, Hopper and Sanderson have apparently deferred to the bankruptcy trustee to bring
any action on behalf of Four-O, Inc. d/b/a Gulf Coast, Ltd. See Commodity Futures Trading
Comm'n v. Weintraub, 471 U.S. 343, 105 S.Ct. 1986, 85 L.Ed.2d 372 (1985) (holding corporate
debtor's cause of action passed to bankruptcy estate).
2
On appeal—in their reply brief—Hopper and Sanderson for the first time raise the issue of
whether they would have standing to sue the Benesch Firm outside of an attorney-client
relationship. Hopper and Sanderson cite Century 21 Deep South Properties, Ltd. v. Corson, 612
So.2d 359, 373-74 (Miss.1992), in which the Mississippi Supreme Court held that an
attorney-client relationship, instead of being a mandatory prerequisite, is but one factor in
determining the duty owed to the plaintiff, if any. In Corson, id. at 374, it was clear that the title
search produced by the attorney would be relied on by the purchasers of the subject real estate.
Although we find it questionable whether Hopper or Sanderson, as individuals, possessed any
right to reasonably rely on the Benesch Firm to timely provide the public offering materials to the
partnership, we need not address the matter, because Hopper and Sanderson only raised the issue
in their reply brief. See Baris v. Sulpicio Lines, Inc., 932 F.2d 1540, 1546 n. 9 (5th Cir.)
("Customarily we decline even to consider arguments raised for the first time in a reply brief."),
cert. denied, --- U.S. ----, 112 S.Ct. 430, 116 L.Ed.2d 449 (1991). In any event, Hopper's and
Sanderson's affidavits in opposition to summary judgment failed to support with sufficient
particularity why they had grounds to reasonably rely on the timeliness of the delivery of the
public offering documents as individuals. See Lavespere v. Niagara Machine & Tool Works, Inc.,
910 F.2d 167, 178 (5th Cir.1990), cert. denied, --- U.S. ----, 114 S.Ct. 171, 126 L.Ed.2d 131(1993).
3
The parties agree that Mississippi substantive law controls this case.
(2)(a) The lawyer manifests to the person consent to do so, or (b) fails to manifest lack of
consent to do so, knowing that the person reasonably relies on the lawyer to provide the
services, or (c) a tribunal with power to do so appoints the lawyer to provide the services.
Singleton, 580 So.2d at 1244 n. 2 (quoting Restatement of The Law: The Law Governing Lawyers
§ 26 (Prelim. Draft No. 6, July 25, 1990)).
However simple the above formula may appear, difficulties arise when trying to apply it to
individuals and the business entities they represent.
The necessity of determining whether an attorney-client relationship exists often arises in an
ethical context. Pursuant to section 73-3-143, the Mississippi Bar's Board of Commissioners has
adopted Model Rule of Professional Conduct 1.13 that generally provides that when a lawyer
represents an organization, he represents the organization as an entity instead of its officers or
representatives. The American Bar Association ("ABA") Opinion 91-361 interprets Model Rule 1.13
in answering the question, "When does a partnership's lawyer have an attorney-client relationship with
an individual partner?" The opinion provides:
[A] lawyer who represents a partnership represents the entity rather than the individual
partners unless the specific circumstances show otherwise....
... This analysis may include such factors as whether the lawyer affirmatively assumed a duty
of representation to the individual partner, whether the partner was separately represented by
other counsel when the partnership was created or in connection with its affairs, whether the
lawyer had represented an individual partner before undertaking to represent the partnership,
and whether there was evidence of reliance by the individual partner on the lawyer as his or
her separate counsel, or of the partner's expectation of personal representation....
(citing Quintel Corp., N.V. v. Citibank, N.A., 589 F.Supp. 1235, 1240 (S.D.N.Y.1984) (recognizing
that limited partnership is analogous to a corporation for purposes of determining existence of
attorney-client relationship with owners); Security Bank v. Klicker, 142 Wis.2d 289, 418 N.W.2d
27 (1987) (stating that attorney-client relationship between partnership's lawyer and individual partner
is not automatic)).
Further, ABA Opinion 91-361 recognizes that a lawyer's representation of a partnership may
preempt the prior representation of the partners as individuals. Similarly, Mississippi courts recognize
that once a corporation adopts a preformation contract that was made by one of its incorporators
with a view toward forming the entity, the corporation preempts the incorporator's status as a party
to the contract and, thus, assumes the incorporator's liability on that contract. See Fortune Furniture
Mfg. Co., Inc. v. Mid-South Plastic Fabrication Co., Inc., 310 So.2d 725, 727 (Miss.1975) (holding
the corporation liable on a preformation contract that it adopted after form ation); 18 Am.Jur.2d
Corporations § 131 (1985) ("[I]f the person dealing with the promoter knew that the corporation did
not exist and that the promoter did not intend to be liable, the promoter will not be liable [on the
preformation contract]"); see generally, Mulvihill v. Vicksburg Ry., Power and Mfg. Co., 88 Miss.
689, 40 So. 647, 650 (1906) (citing Whitney v. Wyman, 101 U.S. (11 Otto) 392, 396, 25 L.Ed. 1050(1879) (holding that individual directors were not liable individually on preformation contract later
ratified by corporation)). ABA Opinion 91-361 further provides, "There is no logical reason to
distinguish partnerships from corporations or other legal entities in determining the client a
corporation represents." Thus, the controlling legal framework for our review of the summary
judgment will focus on the factors listed in ABA Opinion 91-361, including the possibility of
preemption by Gulf Coast of any preformation attorney-client relationship established with Hopper
and Sanderson as individuals.
IV
Against this background, we examine whether the district court erred in granting summary
judgment to the Benesch Firm—on grounds of plaintiffs' lack of standing—because no attorney-client
relationship existed between that firm and Hopper and Sanderson as individuals. Hopper and
Sanderson contend that the district court erred because there was a genuine issue of material fact as
to whether they had an attorney-client relationship with the Benesch Firm.
We review the district court's grant of summary judgment de novo, applying the same
standards used by the district court. United States v. Arron, 954 F.2d 249, 251 (5th Cir.1992). A
party is entitled to summary judgment only if the pleadings, depositions, answers to interrogatories,
admissions, and affidavits before the court at the time of summary judgment show that there is no
genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.
Fields v. City of South Houston, 922 F.2d 1183, 1187 (5th Cir.1991). Once the moving party, here
the Benesch Firm, carries its burden of proving that there is no material factual dispute, Celotex Corp.
v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), the burden shifts to the
nonmovants, here Hopper and Sanderson, to show that summary judgment should not lie. Lavespere,
910 F.2d at 178. Hopper and Sanderson "must discharge that burden by ... either submitting
opposing evidentiary documents or by referring to evidentiary documents already in the record, [that]
set out specific facts showing a genuine issue exists." Lavespere, 910 F.2d at 178.
The Benesch Firm submitted two types of evidence in support of its motion for summary
judgment. First, the Benesch Firm offered the affidavit of Frank in which he stated that the Benesch
Firm had never performed any legal services for Hopper or Sanderson as individual partners, had
never received payment from either of them, and that Hopper and Sanderson had refused to guarantee
the fees payable by Gulf Coast for the legal services rendered to that entity. See Singleton, 580 So.2d
at 1244 (holding that the "client's payment of a lawyer's fee" proves the existence of an attorney-client
relationship, although it is not an absolute prerequisite). Second, the Benesch Firm offered two
letters. The first letter, dated July 29, 1986, was from Hopper, in his capacity as a president of Four-
O, Inc., the managing general partner of Gulf Coast, to the Benesch Firm. The second letter, dated
February 27, 1987, was from the Benesch Firm to Gulf Coast, to the attention of Mississippi attorney,
John Low. Both of the letters indicated that the Benesch Firm would prepare the final public offering
documents for the "issuer,"4 Gulf Coast—not Hopper and Sanderson as individuals—and that Gulf
Coast—not Hopper or Sanderson—would pay the Benesch Firm for those services. These affidavits
and letters shifted the burden of proof to Hopper and Sanderson. Lavespere, 910 F.2d at 178.
In response, Hopper and Sanderson only offered their own affidavits—identical to each
other—to support the existence of an attorney-client relationship between them and the Benesch
Firm. In pertinent part, the Hopper and Sanderson affidavits, in a conclusory manner, stated:
[Hopper, Sanderson, and Gulf Coast] employed [the Benesch Firm] ... to represent them
collectively regarding the formation of a limited partnership to finance a television station ...
4
Generally, the "issuer" in the public offering of limited partnership interests will be the limited
partnership itself or the general partner on whose financial strength the success of the limited
partnership depends. See SEC v. Murphy, 626 F.2d 633, 642-44 (9th Cir.1980). In this case, the
limited partnership, Gulf Coast, purchased all the assets of Four-O, Inc., its managing general
partner. Thus, only Four-O, Inc. or Gulf Coast could have been the issuer—not Hopper, another
general partner, or Sanderson, a stockholder in Four-O, Inc.
[and] [t ]oward the above ends, the [Benesch Firm] performed legal services for [Hopper,
Sanderson, and Gulf Coast].
Based on the affidavits and exhibits before the district court at the time of summary judgment,
we are compelled to agree that there is no genuine issue of material fact with respect to the existence
of an attorney-client relationship between Hopper and Sanderson as individuals and the Benesch Firm.
This conclusion is all the more certain when we focus on the injury that forms the basis of this
action—the timing of the delivery of the final public offering documents. The broad and conclusory
assertion in the affidavits that Hopper and Sanderson engaged the Benesch Firm to form a limited
partnership to raise money to finance a television station does not reflect an explicit and clear
assertion—much less "evidentiary documents ... set[ting] out specific facts," Lavespere, 910 F.2d at
178—that the Benesch Firm undertook an affirmative duty to represent Hopper or Sanderson
separately from the partnership with respect to the project at issue—the preparation of the final public
offering documents for Gulf Coast. See ABA Opinion 91-361 (stating attorney's undertaking of an
affirmative duty to represent partner individually is important in determining separate attorney-client
relationship). Further, Hopper and Sanderson made no assertions regarding any reasonable reliance
or expectation that the Benesch Firm would represent them individually. See id. (stating individual's
reliance and expectations are important in determining separate attorney-client relationship). Finally,
Hopper and Sanderson did not address whether they were separately represented at the formation of
Gulf Coast, or afterwards. See id. (stating separate representation is important in determining
separate attorney-client relationship).
At best, the documents before the district court reflected that Hopper and Sanderson initially
retained the Benesch Firm, and that the firm thus represented them individually until the formation
of the partnership, which was then used for the purpose of financing a television station. Once the
partnership was in place, however, the summary judgment record reveals that the formation of Gulf
Coast preempted any prior relationship with Hopper and Sanderson with respect to the delivery of
the final public offering documents—a project that facially appears to relate only to the issuer, Gulf
Coast, who would receive and invest the funds raised in the public offering.5 See ABA Opinion 91-
361 (recognizing attorney-partnership relationship can preempt prior attorney-individual relationship).
Indeed, even if an attorney-client relationship existed with Hopper and Sanderson prior to the
formation of Gulf Coast, Gulf Coast's acceptance of the benefits of the attorney-client
relationship—the final offering documents—and both parties' agreement that Hopper and Sanderson
would not pay or be perso nally liable for any legal fees, make clear that the attorney-client
relationship with Gulf Coast preempted any prior arguable relationship with Hopper and Sanderson.
See 18 Am.Jur.2d Corporations § 131 ("[I]f t he person dealing with the promoter knew that the
corporation did not exist and that the promoter did not intend to be liable, the promoter will not be
liable ..."); see generally, Mulvihill, 40 So. at 650 (citing Whitney v. Wyman, 101 U.S. (11 Otto) at
396 (holding that promoters were not liable under a preincorporation contract made for benefit of
corporation where plaintiff knew that corporation did not exist at time of execution and parties
intended corporation to be liable)). Thus, the affidavits fail to meet the burden of showing, through
specific and pertinent facts, the existence of a genuine issue of material fact regarding the absence of
an attorney-client relationship between the Benesch Firm and Hopper and Sanderson, as individuals,
that enco mpassed the timing of the delivery of the final public offering documents. See Rosas v.
United States Small Business Admin., 964 F.2d 351, 358 (5th Cir.1992) (holding that the
nonmovant's affidavits failed to meet the requirements for specificity to raise a fact issue to defeat
summary judgment); Washington v. Armstrong World Indus., Inc., 839 F.2d 1121, 1123 (5th
Cir.1988) (holding that the nonmovants must present more than a "metaphysical doubt" regarding
the material facts).6
5
Sanderson's interest in Gulf Coast was only as a shareholder of its managing general partner,
Four-O, Inc. Sanderson was not a partner in Gulf Coast. Thus, his interest in the public offering
project is even further removed than Hopper, who was a general partner in Gulf Coast.
6
Hopper and Sanderson also indirectly argue that certain 1985 correspondence, which they
submitted with their motion for reconsideration, establishes their attorney-client relationship with
the Benesch Firm. Because the district court did not consider the 1985 correspondence, we
review that court's decision to exclude it, and to deny the motion for reconsideration under an
abuse of discretion standard. See Fields, 922 F.2d at 1188. Because Hopper and Sanderson
evidently had access to the 1985 correspondence at the time of the summary judgment and offered
no reason for their belated proffer of the correspondence, the district court did not abuse its
V
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
discretion in refusing to consider it. See Waltman v. International Paper Co., 875 F.2d 468, 473-
74 (5th Cir.1989) (refusing to consider on appeal evidence first offered with motion for
reconsideration of summary judgment when offeror gave no explanation of why such evidence,
which was available at the time of summary judgment, was not offered in opposition to summary
judgment). Further, we note that the correspondence that deals with a draft registration statement
for Gulf Coast does not address the possibility of the partnership's preemption of any relationship
that Hopper and Sanderson may have had with the Benesch Firm. See generally, Fortune
Furniture, 310 So.2d at 272 (stating that a corporation adopts a preincorporation contract by
knowingly receiving the benefits of such contract). Thus, the district court did not abuse its
discretion by refusing to consider the 1985 correspondence and denying Hopper and Sanderson's
motion for reconsideration.