Immigration Law Group, LLP v. v. Danna McKitrick, P.C. ( 2007 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 06-2209
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Immigration Law Group, LLP; *
Visa Law Group, L.L.C., *
*
Appellants, *
*
v. * Appeal from the United States
* District Court for the
Danna McKitrick, P.C.; Danna * Eastern District of Missouri.
Stockenberg, P.C.; Danna McNary *
Stockenberg and Soraghan, P.C.; *
Danna Soraghan Stockenberg and *
McNary, P.C.; Dana Soraghan *
Stockenberg and Shaw, P.C.; Danna *
and Shaw, P.C.; Klamer Danna and *
Shaw, P.C., *
*
Appellees. *
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Submitted: December 14, 2006
Filed: April 4, 2007
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Before WOLLMAN, RILEY, and SHEPHERD, Circuit Judges.
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WOLLMAN, Circuit Judge.
The Immigration Law Group (ILG) alleges that Danna McKitrick, P.C. (Danna)
breached its immigration services contract with various former clients now
represented by ILG by refusing to transfer unearned retainer fees to ILG as requested
by the clients. After a bench trial, the district court1 held, inter alia, that ILG was
equitably estopped from pursuing its claims against Danna and that no contract had
been breached. ILG appeals from the district court’s equitable estoppel and breach
of contract rulings. We affirm.
I. Background
American Immigration Services, Inc. (AIS), a for-profit corporation, connected
clients with Danna for the provision of legal services associated with an immigrant
investor visa program established by AIS. The program allowed foreign investors to
obtain permanent lawful United States resident status under the Immigration and
Naturalization Services’ (INS) EB-5 classification. Gene McNary, who was a partner
at Danna, the head of its immigration practice, a member of its executive committee,
and a former commissioner of the INS, had a relationship with AIS and secured the
retainer agreements from the various clients for the legal work. The legal work
involved three steps: (a) preparing and filing a “Petition for Immigrant Investor” form
(I-526) with the INS; (b) attending a visa interview resulting in the issuance of a two-
year conditional green card; and (c) preparing and filing a “Petition to Remove Two-
Year Condition with the INS” (I-829).2
Danna entered into different retainer agreements with different clients.3 The
various differences resulted from McNary’s revisions of a basic AIS contract.
McNary considered the clients’ fees earned upon issuance of the conditional visa –
1
The Honorable Rodney W. Sippel, United States District Judge for the Eastern
District of Missouri.
2
For concision, we hereinafter refer to these steps as step (a), step (b), and step
(c), respectively.
3
The district court’s judgment addressed claims pertaining to the retainer fees
of 106 client contracts. ILG appeals the district court’s ruling on seven of these.
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step (b) – for all of the agreements, although not all of the agreements explicitly
specify when fees are deemed earned. Accordingly, once the conditional visas were
issued, McNary had the associated fees transferred out of client trust accounts and into
Danna’s general operating account. From there, even though the clients had not yet
become eligible for the removal of conditions under step (c), the fees were treated as
revenue and distributed among the partnership – with a significant portion going to
McNary under his compensation agreement.
McNary left Danna and joined ILG on March 31, 1998. Prior to his departure,
David Morris, a partner at ILG, wrote a letter to McNary in which he acknowledged
that the legal retainer fees collected by Danna were eligible to be deemed earned as
of the completion of step (b). In April 1998, after McNary had joined ILG, McNary
and Morris met with Danna partners to discuss the transfer of the EB-5 program’s
clients to McNary’s new firm. The Danna partners “made it clear that there was not
going to be any money” turned over to McNary from the retainer fees paid by the
clients. In the face of this knowledge, McNary and his new firm induced the clients
to terminate their relationship with Danna. ILG agreed to complete the remaining
legal services without charge, whereupon the clients sent letters to Danna stating that
they were assigning to ILG their rights to any remaining legal retainer fees paid to
Danna that had not yet been earned and instructing Danna to transfer the money and
relevant case files to ILG. Because Danna considered all of the fees earned and had
already distributed them from its general operating account, Danna refused to remit
any money to ILG. ILG, nevertheless, completed the step (c) work for the clients.
One client subsequently sent a letter to the Missouri Bar Association alleging that
Danna had violated the Rules of Professional Responsibility by treating the fees as
earned prior to the completion of step (c). The Chief Disciplinary Counsel informed
the complaining client that his “investigation does not establish probable cause to
believe that [there had been any violation of] the Rules of Professional Conduct.”
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ILG brought this action, seeking remedies under breach of contract and
quantum meruit theories. Danna asserted an equitable estoppel defense and also
asserted that the statute of limitations had run on the claims. As stated above, the
district court held, inter alia, that ILG was equitably estopped from asserting its
claims.4
II. Discussion
We review a district court’s factual findings for clear error and its legal
conclusions de novo. Tamko Roofing Prods., Inc. v. Smith Eng’g Co., 450 F.3d 822,
827 (8th Cir. 2006). We apply Missouri law in this diversity action. Lindsay v.
Safeco Ins. Co. of Am., 447 F.3d 615, 617 (8th Cir. 2006). The doctrine of equitable
estoppel prevents a party from taking inequitable advantage of a situation it caused.
Weiss v. Rojanasathit, 975 S.W.2d 113, 120 (Mo. 1998) (superseded by statute on
other grounds). An equitable estoppel defense requires a showing of three elements:
(1) an admission, statement, or act inconsistent with the claim afterward asserted or
sued upon; (2) action by the other party on the faith of the admission, statement, or
act; and (3) injury to such other party resulting from allowing the first party to
contradict or repudiate the admission, statement, or act. Stone v. Crown Diversified
Indus. Corp., 9 S.W.3d 659, 668 (Mo. Ct. App. 1999) (citing Missouri Highway &
Transp. Comm’n v. Myers, 785 S.W.2d 70, 73 (Mo. 1990)).
4
It also held, in the alternative, that for all but two of the contracts, the statute
of limitations had either lapsed or Danna had earned its retainer and had not breached
the contracts. With respect to the remaining two contracts, the court held that ILG
could not recover on the contracts because ILG had introduced evidence suggesting
that it had not completed the step (c) work for the contracts’ respective clients, despite
a joint stipulation between the parties that ILG had, indeed, completed the work.
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A. Equitable Estoppel
In regard to the first element, ILG does not contest that McNary acted
inconsistently with the claim in this suit by treating the clients’ funds as fully earned
upon the issuance of a conditional visa when he transferred the fees out of client trust
accounts.
Instead, ILG contends that the second element is not satisfied because Danna
failed to introduce sufficient evidence demonstrating its reliance on McNary’s action
and belief. It points out that McNary never shared his interpretation of the agreements
with anyone at Danna. It further argues that because Danna knew it would incur
additional costs completing step (c) for each of McNary’s clients, it could not have
justifiably relied on McNary’s conclusion. Additionally, it suggests that if Danna
relied on McNary’s act of transferring the fees to the firm’s operating account, such
reliance was misplaced because Danna had equivalent access to the agreements and
could have made its own determination as to when the fees were earned. We find
these contentions unpersuasive.
First, removing the fees from the client trust account demonstrated McNary’s
belief that the fees were earned, even though he never mentioned his opinion on the
matter to anyone at Danna. The firm relied on the propriety of McNary’s shifting of
the fees to the firm’s operating account when it thereafter distributed the operating
account funds to it partners. See Stone, 9 S.W.3d at 668 (noting that an action may
be relied upon for equitable estoppel purposes).
Second, the mere fact that Danna knew potentially costly step (c) work
remained does not render its reliance on McNary’s assessment unreasonable. After
all, as ILG concedes, fourteen of the retainer agreements explicitly state that the fees
would be deemed earned upon completion of step (b) even though Danna was obliged
to complete step (c). Although many contracts were silent on the matter, in these
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circumstances it was not unreasonable for Danna to rely on McNary’s conclusion that
the other contracts likewise permitted Danna to deem fees earned after the completion
of step (b).
Third, Danna’s independent access to the text of the agreements does not render
its reliance any less reasonable in this case. ILG contends that we should adhere to
a proposition stated in Farmland Industries, Inc. v. Bittner, 920 S.W.2d 581, 583 (Mo.
Ct. App. 1996), that “one cannot set up another’s act or conduct as the ground of an
estoppel when [one] knew or had the same means of knowledge as the other to the
truth.” ILG’s reliance on Bittner is misplaced. Unlike the situation in Bittner, in
which the party seeking estoppel failed to request and adequately review an available
agreement that would have clearly indicated key information contrary to what was
relied upon, many of the retainer agreements here are not models of clarity and thus
necessitated and justified Danna’s reliance on McNary’s opinion. As the attorney of
record who selected or modified the relevant agreements and who, even if not in direct
contact with the clients, was the Danna representative that worked with AIS in
securing the clients’ consent, McNary was the closest thing Danna had to an authority
for the purpose of construing the agreements’ provisions based on the intentions of
their signatories. See Burrus v. HBE Corp., 211 S.W.3d 613, 616-17 (Mo. Ct. App.
2006) (“‘[t]he cardinal rule in the interpretation of a contract is to ascertain the
intention of the parties and to give effect to that intention’” (alteration in original)
(quoting J. E. Hathman, Inc. v. Sigma Alpha Epsilon Club, 491 S.W.2d 261, 264 (Mo.
1973))). Accordingly, for the above reasons, we do not consider the district court’s
finding that Danna justifiably relied on McNary’s action clearly erroneous.
Regarding the last equitable estoppel element, Danna would suffer damages had
the district court allowed McNary and ILG to contradict or repudiate McNary’s prior
acts because Danna would have to pay ILG (and, thus, McNary) a sum of money that
included the sizeable sum already disbursed to McNary. Accordingly, the district
court’s finding on the damage element was not clearly erroneous.
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B. The Nexus Between ILG and McNary
Finally, ILG submits that even if the facts discussed above support equitable
estoppel as to McNary, ILG itself cannot be equitably estopped by McNary’s
inconsistent acts because McNary is not a plaintiff in this action and was not an ILG
partner when he originally acted. This distinction is of no consequence here. It would
be inequitable to disassociate the respective roles of ILG and McNary in inducing and
maintaining Danna’s reliance on McNary’s conclusion. David Morris, acting in the
capacity of an ILG principal, sent a letter to McNary while McNary was still a Danna
partner, seeking to work out the details for transferring the clients to ILG. In this
letter, Morris indicated that ILG considered the retainers earned by Danna.5 Because
ILG’s stated position in its correspondence implied that it would not be pursuing the
money already earned and distributed to Danna partners after ILG took on the clients,
McNary had no obligation in his role as a Danna fiduciary to take precautionary steps
that would have insulated Danna from potentially damaging liability resulting from
his imminent departure and transfer of clients to ILG. Additionally, both McNary and
ILG were well aware of the disposition of the fees when ILG agreed to take on
McNary’s clients. ILG completed the step (c) work even after the Danna partnership
had unequivocally indicated to ILG that it would remit no fees even should ILG do
the work. In light of the extent to which ILG’s and McNary’s combined and knowing
actions created the potential liability underpinning this suit, and given ILG’s decision
to complete the work while knowing full well that Danna would forward no fees, ILG
cannot disassociate its own involvement from McNary’s.
5
“As stated in the standard retainer agreement, legal fees are only eligible to be
deemed as ‘earned’ AFTER initial conditional visa issuance. . . . According to the
records you have provided our office, and those provided by AIS, . . . [f]or the above
stated 200 cases, it is our understanding that [the] legal retainer fees were eligible to
be deemed as ‘earned’ in a manner identified in the standard ‘Retainer Agreement.’”
(Appellant’s App. at 362).
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Because equitable estoppel bars its claims, we need not consider ILG’s breach
of contract arguments. The judgment is affirmed.
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