Hall v. Sullivan , 272 F. App'x 284 ( 2008 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1009
CHRISTOPHER U. HALL,
Plaintiff - Appellant,
v.
ROGER J. SULLIVAN; MARK DEVAN; COVAHEY, BOOZER, DEVAN & DORE,
LLC; DIPAULA & SULLIVAN, LLC,
Defendants - Appellees,
v.
SODEXHO, INCORPORATED,
Movant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. William D. Quarles, Jr., District Judge.
(1:04-cv-02846-WDQ)
Argued: January 31, 2008 Decided: April 8, 2008
Before WILKINSON and TRAXLER, Circuit Judges, and Liam O’GRADY,
United States District Judge for the Eastern District of Virginia,
sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Michael P. Coyle, Columbia, Maryland, for Appellant.
Stephan Young Brennan, ILIFF & MEREDITH, P.C., Pasadena, Maryland,
for Appellees. ON BRIEF: Kathleen Howard Meredith, ILIFF &
MEREDITH, P.C., Pasadena, Maryland, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Christopher Hall sued Roger J. Sullivan, Esq., Mark Devan,
Esq., DiPaula & Sullivan, LLC, and Covahey, Boozer, Devan & Dore,
LLC, for legal malpractice. The district court granted Defendants’
motion for summary judgment and denied Plaintiff’s motion for
summary judgment. The district court held that under Maryland law
Hall had not met the burden of proving that defendants breached the
standard of care in structuring the franchise investment
transaction, that the termination agreement concerning other
franchises did not release Hall’s rights under the remaining
franchise agreement, and that Hall failed to prove that he suffered
a loss proximately caused by defendants. The district court also
held that the attorneys properly billed Hall for their efforts to
enforce the franchise rights and that Sullivan’s alleged negligence
in making settlement demands to Smoothie King® did not cause Hall’s
losses. Finding no error, we affirm the judgment of the district
court.
I.
Christopher Hall, a seasoned businessman who previously owned
GNC® franchises, sought to invest in Smoothie King® franchises in
1998. Hall consulted with the law firm of Kilpatrick Stockton LLP
in connection with a venture capital investment in, and consulting
service arrangement with, the acquisition of three separate
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Smoothie King® franchises; one in North Carolina, one in Boston,
and one in South Carolina. Hall received a retainer letter from
Kilpatrick Stockton LLP on June 19, 1998, which detailed the
documents necessary to complete Hall’s desired franchise investment
transactions.
Instead of retaining Kilpatrick Stockton LLP, Hall faxed the
retainer letter from Kilpatrick Stockton LLP, containing Hall’s
handwritten annotations from his conversations with them, along
with a handwritten note to Sullivan on June 23, 1998. Hall
instructed Sullivan to expeditiously prepare the documents
delineated in the Kilpatrick Stockton LLP retainer letter. Hall
emphasized that the transaction was to be structured so that Hall
would provide financial backing and consulting services to the
three franchises, yet Hall’s liability would be limited, his
investment would be protected, and Hall would not have to pay state
taxes.
Hall further told Sullivan to create three corporations for
the Smoothie King® franchises and to prepare warrant certificates
to each franchise, which Hall would hold. The warrant
certificates, upon presentation, would allow Hall to purchase a
majority interest in each corporation on demand, thereby permitting
Hall to step in and take control of the franchise. The structure
of this transaction, as envisioned by Hall, protected his interest
in the Smoothie King® franchise, yet shielded him from liability.
4
Sullivan, who previously represented Hall in connection with
other legal matters, agreed to represent Hall in this matter.
Accordingly, Sullivan prepared the franchise investment transaction
documents specified by Hall for the three franchises. With regard
to the South Carolina franchise, Hall provided financing to Ryan
Beck, so that Beck could open and manage the South Carolina
franchise. Sullivan created a corporation called Rybeck, Inc. to
hold the franchise assets and prepared a warrant agreement signed
by Ryan Beck on behalf of Rybeck, Inc. The warrant agreement
allowed Hall to become the majority shareholder of Rybeck, Inc. on
demand, giving him the authority to exercise control of the South
Carolina franchise at his option. Sullivan also reviewed and
prepared other documents for the South Carolina franchise1.
The structure of Hall’s proposed transaction required advance
approval by Smoothie King®, because the franchise investment
structure violated certain terms of the Smoothie King® Franchise
Agreement and Smoothie King® Area Development Agreement.
Accordingly, Sullivan drafted a letter agreement on July 10, 1998,
to Smoothie King® which detailed the structure of Hall's franchise
1
Sullivan prepared the Smoothie King® Area Development
Agreement, the Smoothie King® Franchise Agreement naming Ryan Beck
as franchisee, a pledge and security agreement between Hall, Ryan
Beck, and Rybeck, Inc., a revolving credit master note for Rybeck,
Inc., a revolving credit loan agreement for Rybeck, Inc., a
consulting agreement, and a guarantee agreement signed by Ryan
Beck.
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investment transaction2. Approval was received on October 8, 1998.
Pursuant to the South Carolina Smoothie King® Area Development
Agreement, Ryan Beck and Rybeck, Inc., which were treated
interchangeably by Smoothie King® and Hall, were to have three
Smoothie King® stores in operation by November 1, 1999. Ryan Beck
and Rybeck, Inc. opened one store in South Carolina in early 1999.
Beck also opened a Smoothie King® cart at the University of
South Carolina campus but ceased the operation soon thereafter
because of operational problems. Beck attempted to open a Smoothie
King® store at the University of South Carolina in March 1999, but
the University declined to enter into a contract. As a result of
the failed business venture with the University of South Carolina,
Hall believed that he had causes of action against Smoothie King®
for breach of contract and tortious interference of contract3.
By May 11, 2000, Beck and Rybeck's only store was in default
for failure to pay operating and advertising fees to Smoothie
King®, and Beck and Rybeck were in default under the Area
2
Hall would provide financial backing to Ryan Beck for the
South Carolina franchise, and to two other individuals for the
North Carolina and Boston franchises, and Hall maintained the right
to step in and take control of each franchise at any time. The
letter agreement also set forth each section of the Smoothie King®
Franchise Agreement and Smoothie King® Area Development Agreement
that this transaction could potentially violate, and sought
Smoothie King®’s approval.
3
Hall believed that Smoothie King® attempted to negotiate a
contract with the University of South Carolina to cut him out of
the deal and place him in default under the Area Development
Agreement for failure to open the requisite number of franchises.
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Development Agreement for failure to open the requisite number of
Smoothie King® stores. As a result of Beck and Rybeck’s defaults,
in March of 2002 Sullivan obtained a confessed judgment on behalf
of Hall against RyBeck, Inc. in the amount of $348,730.23 plus
attorney's fees in the amount of $52,309.53, and a confessed
judgment against Ryan Beck in the amount of $431,411.23, plus
attorney's fees in the amount of $64,711.18. Sullivan was able to
obtain these judgments in favor of Hall because of the documents
Sullivan had earlier prepared to protect Hall’s interest in the
South Carolina franchise. On April 3, 2002, Hall exercised the
warrant certificates and became the majority shareholder of Rybeck,
Inc. On September 6, 2002, Hall and Beck signed an agreement that
transferred all of Ryan Beck’s rights under the Smoothie King®
Franchise Agreement to Hall.
Hall also encountered difficulties with the Boston and North
Carolina franchises, and Smoothie King® stores in those locations
never opened. Sullivan negotiated a Termination Agreement between
Smoothie King®, Hall, and the two franchisees in those locations,
which was entered into on June 15, 2001. The terms of that
Agreement released Hall and the franchisees from their obligations
under the Smoothie King® Franchise Agreements and Smoothie King®
Area Development Agreements, and Hall received a full return of his
investment in the Boston and North Carolina franchises from
Smoothie King® in the amount of $65,000.00.
7
Ryan Beck eventually abandoned the South Carolina franchise,
moved to Florida for personal reasons, and became an operations
manager at Smoothie King® Corporate. As a result of Hall and Ryan
Beck’s deteriorated relationship, Ryan Beck’s move to Florida, and
the failure of the University of South Carolina business venture,
Hall accused Smoothie King® of breach of contract and tortious
interference of contract. Smoothie King® responded by letter that
the Termination Agreement had released all claims against it for
the Boston, North Carolina, and South Carolina franchises, and that
Hall’s claim for tortious interference lacked merit. Hall did not
further pursue the claim against Smoothie King® and instead filed
the instant legal malpractice action.
II.
Hall disputes the district court’s conclusion that the
attorneys did not breach the appropriate standard of care under
Maryland law.4 Hall also argues that the district court erred when
it ruled that the Termination Agreement did not negate Hall’s
ability to sue Smoothie King® or vitiate the 1998 letter agreement.
4
Hall also argues that the district court improperly granted
summary judgment as to the issue of Sullivan’s negligence with
regard to the South Carolina franchise sua sponte, thereby
violating the notice requirement as set forth in Allstate Ins. Co.
v. Fritz, 452 F.3d 316, 323 (4th Cir. 2006). This argument lacks
merit, as the testimony of Hall’s own expert that Sullivan did not
breach the standard of care in structuring the transaction was part
of the record. This focal issue was also addressed in the summary
judgment briefs before the district court.
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Further, Hall argues that if we determine the attorneys were
negligent, Hall is entitled to a portion of the fees he paid to the
attorneys. Lastly, Hall argues that the district court erred when
it granted summary judgment in Sullivan’s favor regarding
intemperate letters written to Smoothie King®, which Hall argues
caused Smoothie King® to decline to enter into settlement agreement
with him.
III.
In order to recover against an attorney for legal malpractice
in Maryland, a plaintiff must prove “(1) the attorney’s
employment,(2) the attorney’s neglect of a reasonable duty, and (3)
loss to the client proximately caused by that neglect of duty.”
Thomas v. Bethea, 718 A.2d 1187, 1195 (Md. 1998). “In order to be
a proximate cause, the negligence must be [(]1) a cause in fact,
and [(]2) a legally cognizable cause.” Atlantic Mut. Ins. Co. v.
Kenney, 591 A.2d 507, 512 (Md. 1991). In a legal malpractice case,
expert testimony is required to establish the standard of care and
breach thereof when the acts in question are not “within the common
knowledge or experience of a layperson as to enable him or her to
readily recognize or infer negligence therefrom.” Royal Ins. Co.
of Am. v. Miles & Stockbridge, P.C., 138 F. Supp. 2d 695, 701 (D.
Md. 2001), modified by Royal Ins. Co. of Am. v. Miles &
Stockbridge, P.C., 142 F. Supp. 2d 676 (D. Md. 2001).
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IV.
The district court found that expert testimony was necessary
in this case. The district court then correctly concluded that
Hall’s legal malpractice claim failed because he had not produced
expert testimony establishing that the structure of the franchise
transaction, as dictated by Hall, was a breach of the standard of
care. In fact, the court found that Hall's own expert witness
concluded that the structure of the transaction by Sullivan was not
a breach of the standard of care. Hall also argues that the
district court ignored the further testimony of his expert that
Sullivan had erred by improperly drafting the franchise transaction
to name Ryan Beck as franchisee of the South Carolina franchise
instead of naming Rybeck, Inc., as was intended. Hall argues that,
because he held a warrant certificate to Rybeck, Inc., and not to
Ryan Beck, his interest in the Columbia franchise was not protected
and he was therefore unable to compel Ryan Beck to transfer the
franchise on demand pursuant to the warrant certificate. Again,
under Maryland law, Hall was required to establish through expert
testimony the relevant standard of care for implementation of the
franchise transaction. Without an expert establishing to the
court's satisfaction the duty of reasonable care of counsel in this
business setting, i.e., the standard of care, the court cannot
determine whether the alleged error constitutes legal malpractice.
Hall's expert failed to do so in this case. See Royal Ins. Co.,
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138 F. Supp. 2d at 701. Therefore, the district court properly
denied this claim.
V.
Under Maryland law, a plaintiff in a legal malpractice case
must also establish that he sustained a loss that was proximately
caused by the attorney’s breach of a reasonable duty. See Thomas,
718 A.2d at 1195. The district court correctly concluded that Hall
had not met this burden after analyzing the pertinent documents.
The district court properly construed the Termination
Agreement to preserve Hall’s rights in the South Carolina franchise
and noted that Ryan Beck was not a signatory to the Termination
Agreement of the Boston and North Carolina franchises5. Moreover,
the court found that Hall’s rights in the South Carolina franchise
were preserved by the July 10, 1998, letter agreement between
Smoothie King® and Hall that approved the franchise investment
structure. Accordingly, Hall could step in at any time to take
control of the South Carolina franchise. Therefore, the court
found that Hall had the ability to assert his rights on behalf of
the South Carolina franchise but declined to do so. He cannot now
claim that he suffered damages for his own failure to assert his
rights.
5
This finding blunts Hall’s claim that Sullivan erred in
naming the South Carolina franchise in the name of Ryan Beck, not
RyBeck, Inc.
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VI.
For the foregoing reasons, we affirm the judgment of the
district court.6
AFFIRMED
6
We decline to address any further issues raised by Appellant
as they lack merit and are made moot by our holdings herein.
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