Hinkle Oil & Gas, Inc. v. Bowles Rice McDavid Graff & Love, LLP

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 08-2275
HINKLE OIL & GAS, INCORPORATED, an Oklahoma Corporation,
Plaintiff - Appellant,
v.
BOWLES RICE MCDAVID GRAFF & LOVE, LLP, a West Virginia
Limited Liability Partnership; CHARLES B. DOLLISON; JULIA A.
CHINCHECK; DOES 1 – 100; MARC MONTELEONE; GERARD STOWERS,
Defendants - Appellees.
Appeal from the United States District Court for the Western
District of Virginia, at Roanoke. Samuel G. Wilson, District
Judge. (7:07-cv-00487-sgw-mfu)
Argued: October 29, 2009 Decided: January 5, 2010
Before NIEMEYER and DUNCAN, Circuit Judges, and Benson E. LEGG,
United States District Judge for the District of Maryland,
sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Hugo Nathan Gerstl, HUGO N. GERSTL, INC., Monterey,
California, for Appellant. William Delaney Bayliss, WILLIAMS
MULLEN, Richmond, Virginia, for Appellees. ON BRIEF: Brendan D.
O’Toole, WILLIAMS MULLEN, Richmond, Virginia, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
Hinkle Oil & Gas, Inc. (“Hinkle”) challenges the district
court’s grant of summary judgment in favor of the law firm
Bowles Rice McDavid Graff & Love, LLP (“Bowles Rice”), and
individual partners Charles Dollison, Marc Monteleone, Julia
Chincheck, and Gerard Stowers on Hinkle’s claims for intentional
interference with economic advantage, breach of fiduciary duty,
and legal malpractice. For the reasons set forth below, we
affirm.
I.
A.
Appellant Hinkle, an oil and gas well development company,
had a sister corporation named Minerals Management Group, Inc.
(“MMGI”). In 1997, MMGI sued Buffalo Properties, LLC
(“Buffalo”) over the leasing rights to two oil and gas wells in
Kentucky. The litigation continued into 2004, at which point
Buffalo sought Chapter 11 bankruptcy protection.
On June 6, 2005, the bankruptcy matter became a Chapter 7
proceeding. Buffalo’s eligible assets were transferred to its
bankruptcy estate. The assets included 19 wells in Kentucky
(“KY wells”) and 274 wells in West Virginia (“WV wells”). A
bankruptcy trustee was appointed to liquidate Buffalo’s assets
and pay off creditors.
3
In early spring 2006, the trustee negotiated a plan under
which Hinkle would buy the KY wells for $400,000 and would drop
MMGI’s lawsuit against Buffalo. On March 1, 2006, the trustee
faxed Hinkle a proposed contract for the KY wells reflecting the
$400,000 price. Hinkle then hired attorney Julia Chincheck of
the Bowles Rice law firm to complete the negotiations and obtain
approval from the bankruptcy court. Although Chincheck notified
her partners about this matter, none reported a conflict
relating to Hinkle or Buffalo. Hinkle paid a $5,000 retainer
and Chincheck began representation.
On May 3, 2006, the trustee moved for the bankruptcy court
to approve a proposed contract to sell the WV wells to Applied
Mechanics Corporation (“AMC”) for $400,000. On May 23, 2006,
two of Buffalo’s creditors, Mervil Perry and the Estate of Bobby
Gillispie (“Gillispie”), filed separate objections to the
proposed sale.
That same day, the bankruptcy trustee agreed to sell the KY
wells to Elk River Energy, LLC (“Elk River”) for $450,000,
abandoning the tentative plan to sell to Hinkle for $400,000.
On May 25, 2006, the trustee moved for the bankruptcy court to
approve this sale.
Elk River had been recently organized by two Bowles Rice
partners, Charles Dollison and Marc Monteleone, and a friend of
theirs. It is unknown whether any Bowles Rice partners knew of
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the potential conflict between Elk River and Hinkle when
Chincheck opened the Hinkle file. 1 Bowles Rice became aware of
the conflict at least by early May when the trustee informed
Dollison that his law partner, Chincheck, was representing
Hinkle. According to the district court’s opinion, Dollison
assured the trustee, “Don’t worry, I’ll take care of it.” J.A.
736.
Bowles Rice did not, however, resolve the conflict or even
inform Hinkle that its partners were involved with Elk River.
Hinkle only learned of the conflict through its own independent
investigation. At a meeting on May 25, 2006, the trustee told
Hinkle that Buffalo had entered into a written contract to sell
the Kentucky wells to Elk River. This information prompted
Hinkle to investigate Elk River, and the inquiry unearthed the
involvement of the Bowles Rice partners. Hinkle then confronted
Bowles Rice, demanding that Elk River mitigate the harm to
Hinkle by assigning its contract to Hinkle and paying Hinkle the
$50,000 difference. Bowles Rice rejected this demand. Hinkle
never requested that Bowles Rice return its retainer fee, and
the firm never did.
1
Bowles Rice concedes that a conflict exists for purposes
of this case.
5
Dollison and Monteleone then met with Gerard Stowers, who
oversaw risk management for Bowles Rice. Based on the group’s
decision, Bowles Rice stopped representing Hinkle, and Elk River
requested that the trustee withdraw his May 25, 2006, motion for
court approval of the sale. The trustee rejected that request.
The proposed contract of sale to Elk River allowed for
“upset bids,” namely, higher bids by outside parties that would
trigger an auction to the highest bidder. The sales contract
stated, “The sale . . . allows . . . upset bids in an amount of
$455,000[] or more . . . provided such upset bid is accompanied
by an earnest money deposit of $25,000 in immediately available
funds.” J.A. 430. On June 9, 2006, Hinkle submitted to the
trustee and the bankruptcy court a $455,000 upset bid with the
required $25,000 earnest money. The upset bid included a
proposed purchase agreement that, by its own terms, was subject
to the approval of the court. On June 12, 2006, Elk River filed
an objection to the trustee’s May 25, 2006, motion for approval
of its own sales contract, explaining that Hinkle had threatened
litigation.
On July 3, 2006, the bankruptcy court received a letter of
intent from First South Investments offering to purchase all of
Buffalo’s assets for $2,500,000. On July 7, 2006, before taking
any action on the proposed sale of the KY wells to Elk River,
the court held a hearing on the trustee’s May 3, 2006, motion to
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approve the sale of the WV wells to AMC. The trustee, Perry,
and Gillispie were represented at the hearing. Energy One
Group, Inc. (“EOG”), who had submitted an upset bid in that
sale, and James Clowser, who was a member of Buffalo, were also
represented. At the hearing, the creditors and Clowser informed
the court that “at least two entities had expressed interest in
acquiring all of the assets of the Debtor for substantially more
than the total of the highest existing bids for the West
Virginia Oil and Gas Asset and the Kentucky Oil and Gas Asset of
the Debtor.” J.A. 505.
On July 17, 2006, the court decided the motion. In its
order, the court noted the mention of the higher offers. The
court sustained the creditors’ objection to the WV wells sale
and ordered the trustee to propose new sale procedures that
would permit credit bidding, allow prospective buyers to make
one bid for the KY wells and WV wells combined, and provide for
an auction to choose among multiple qualifying bids. The
trustee soon proposed new procedures, which the court approved
over Hinkle’s objection.
The trustee eventually auctioned off Buffalo’s assets under
the new procedures. Hinkle made the highest bid for the KY
wells at $500,000. But the overall highest bidder was Heritage
Financial Group, Inc. (“Heritage”), which offered $7,000,000 for
all of Buffalo’s assets. Elk River did not bid at all. After
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making the purchase, Heritage transferred Buffalo’s assets to
Mountain County Partners (“MCP”) and dissolved.
B.
After losing the auction, Hinkle brought this action
against Appellees Bowles Rice, Dollison, Monteleone, Chincheck,
and Stowers. The amended complaint alleged intentional
interference with economic advantage (Count 1), breach of
fiduciary duty (Count 2), conversion or misappropriation of
property (Count 3), and legal malpractice (Count 7). 2
Hinkle and Appellees filed cross-motions for summary
judgment. On September 17, 2008, the district court awarded
summary judgment to Appellees. The court found that Counts 1,
2, and 7 failed because Hinkle was unable to prove that
Appellees caused it not to obtain the KY wells. The court also
said Count 3 failed because Hinkle never demanded the $5,000
retainer, which remained in Bowles Rice’s client trust account.
Hinkle was given ten days to file an amended complaint asserting
claims that did not require proof of causation. On September
18, 2008, Hinkle filed a motion for reconsideration, which the
court denied. On September 19, 2008, Hinkle filed another
amended complaint. The court dismissed the amended complaint on
2
Hinkle abandoned Counts 4-6 of its original complaint.
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October 28, 2008, finding that all the claims raised therein
required proof of causation. This appeal followed.
II.
Hinkle challenges the district court’s grant of summary
judgment, asserting error in its conclusion that Hinkle failed
to produce sufficient evidence of causation for Counts 1, 2, and
7. 3 Hinkle asserts that it presented sufficient evidence to
raise a factual question as to causation because it showed that,
had Elk River not objected to its own sale contract for the KY
wells, Hinkle would have been the successful upset bidder. 4
We review de novo a grant of summary judgment. Smith v.
Ozmint, 578 F.3d 246, 250 (4th Cir. 2009). Summary judgment is
appropriate if “the pleadings, the discovery and disclosure
materials, and any affidavits show that there is no genuine
issue as to any material fact and that the movant is entitled to
3
Hinkle does not challenge and thus waives objection to the
district court’s grant of summary judgment on Count 3.
4
Hinkle concedes that its intentional interference with
economic advantage, breach of fiduciary duty, and legal
malpractice claims all require proof that Appellees’ conduct was
the proximate cause of Hinkle’s failure to obtain the KY wells.
West Virginia law defines proximate cause to mean “that cause
which in actual sequence, unbroken by any independent cause,
produced the wrong complained of, without which the wrong would
not have occurred.” Spencer v. McClure, 618 S.E.2d 451, 455 (W.
Va. 2005) (citation and internal quotations omitted).
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judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2). We
construe the evidence in the light most favorable to Hinkle and
draw all reasonable inferences in its favor. See Smith, 578
F.3d at 250. Although Hinkle does not have to show that
Appellees’ conduct “was the sole proximate cause of the injury,”
Spencer, 618 S.E.2d at 455-56 (emphasis omitted), “a mere
possibility of causation is not sufficient” to defeat summary
judgment, id. at 456 (citation and quotations omitted).
Hinkle argues that Elk River’s objection caused it to lose
in the bidding process. Its position hinges on an assertion of
inevitability: had Elk River not objected, the process would
have proceeded quickly to a resolution in its favor. The
record, however, does not bear this out.
In this case, the bankruptcy court restructured the bidding
process in a way that caused Hinkle to be unsuccessful in its
bid. It is clear from the court’s July 17, 2006, order that
this restructuring occurred as a result of the July 7, 2006,
hearing during which Buffalo’s creditors for the WV wells
brought to the court’s attention the fact that “at least two
entities had expressed interest in acquiring all of [Buffalo’s]
assets . . . for substantially more than the total of the
highest existing bids.” J.A. 505. Therefore, to show that Elk
River’s objection caused Hinkle to lose the bid, Hinkle would
have to present evidence that, absent Elk River’s objection, the
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bankruptcy court would have authorized the trustee’s sale of the
KY wells to Hinkle as the upset bidder prior to July 7, 2006,
and would therefore not have had occasion to place the KY sales
back into play. However, Hinkle has not presented any evidence
that would permit it to assert with any certainty that the
bankruptcy court would have approved the sale before that date.
Hinkle’s upset bid documents clearly indicate that the
proposed sales agreement between the trustee and Hinkle was
subject to the bankruptcy court’s approval. 5 Hinkle argues,
however, that the court would have approved the sale “pro forma”
shortly after Hinkle’s upset bid. This assumption contradicts
the trustee’s testimony that “there is always a chance” that the
court might reject the sale. J.A. 266. In fact, in his
deposition, the trustee agreed that “it would be speculation to
guess whether [the sale] would [have] be[en] approved” by the
bankruptcy court. J.A. 262. Hinkle’s assumption also ignores
5
Although Hinkle argues that the bankruptcy court’s
approval was not legally required, the evidence in the record
strongly supports the inference that the trustee would not have
acted without the court’s approval. The trustee filed a motion
with the court requesting its approval to complete the Elk River
sale. Also, both Elk River’s sale contract and Hinkle’s upset
bid expressly provided that any sale of the property was
“subject to [the] approval of the Bankruptcy Court.” J.A. 413,
454. Therefore, whether or not the approval was legally
required, there is absolutely no support for the assumption that
the trustee would have reversed course and attempted to finalize
the Hinkle sale without the court’s approval.
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the fact that, on July 3, 2006, the court received a letter of
intent from First South Investments offering $2,500,000 for all
of Buffalo’s assets. It would be mere speculation to assume
that the court would have ignored that offer and approved the
Hinkle sale. Furthermore, Hinkle’s assumption that the court
would have taken a purely passive role in approving the sale is
contradicted by the court’s proactive involvement in directing
the trustee to restructure the bidding process in order to
create the potential for higher returns for Buffalo’s creditors.
Even assuming that the bankruptcy court would have approved
the sale, Hinkle has presented no evidence to support the
inference that the approval would have occurred before the July
7, 2006, hearing that led to the bidding restructuring. Hinkle
merely speculates that the “pro forma” approval of the court
would have occurred in approximately one day. Hinkle cannot
“create a genuine issue of material fact through mere
speculation or the building of one inference upon another.”
Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985); see also
Francis v. Booz, Allen & Hamilton, Inc., 452 F.3d 299, 308 (4th
Cir. 2006) (“Mere unsupported speculation is not sufficient to
defeat a summary judgment motion if the undisputed evidence
indicates that the other party should win as a matter of law.”)
Hinkle’s unsupported assertion that, but for Elk River’s
objection, the bankruptcy court would have approved the upset
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bid before having an opportunity to restructure the bidding
process is not sufficient to defeat Appellees’ summary judgment
motion.
III.
Accordingly, for the reasons stated above, we
AFFIRM.
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