Hamilton v. Bangs, McCullen, Butler, Foye & Simmons, L.L.P.

United States Court of Appeals
For the Eighth Circuit
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No. 11-1823
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Douglas W. Hamilton
lllllllllllllllllllll Plaintiff - Appellant
v.
Bangs, McCullen, Butler,
Foye & Simmons, L.L.P.;
and Jeffrey G. Hurd
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the District of South Dakota - Rapid City
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Submitted: February 14, 2012
Filed: August 6, 2012
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Before GRUENDER, BENTON, and SHEPHERD, Circuit Judges.
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SHEPHERD, Circuit Judge.
Douglas W. Hamilton appeals the district court’s1 order granting summary
judgment in favor of appellees and dismissing his claims for legal malpractice and
breach of fiduciary duty. We agree with the district court that Hamilton has failed to
show that his loss of net worth was proximately caused by the actions of appellees.
Accordingly, we affirm.
I.
Hamilton is the president and owner of Barker & Little, Inc. (Barker & Little),
a real estate management company with its principal place of business in Rapid City,
South Dakota. In 2004, Hamilton and his company were sued in federal district court
by an employee, Celisity Klein-Cadotte, who alleged claims of sexual harassment,
retaliation, and intentional infliction of emotional distress. Hamilton retained the law
firm of Bangs, McCullen, Butler, Foye & Simmons, L.L.P. (Bangs McCullen) to
represent him and his company. Bangs McCullen assigned one of its partners, Jeffrey
Hurd, to act as lead defense counsel. Bangs McCullen did not disclose to Hamilton
that Hurd had relatively little trial experience and virtually none in regard to sexual
harassment claims.
Before the case proceeded to trial, Klein-Cadotte declared bankruptcy. At that
time, she valued her claim at $35,000. Hurd made no attempt to try to purchase the
claim from the bankruptcy trustee. Although Hamilton now contends he would have
been willing to settle the case with the trustee for $35,000, Hamilton was otherwise
unwilling to mediate or to settle the case.
The Klein-Cadotte case proceeded to trial, and the jury returned a verdict
against Barker & Little for $4.1 million. No verdict or judgment was rendered against
Hamilton personally. The court reduced the judgment against Barker & Little to
1
The Honorable Jeffrey L. Viken, United States District Judge for the District
of South Dakota.
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approximately $1.7 million. The court then granted Barker & Little’s motion for a
new trial, finding that one of its rulings on an attorney-client privilege issue unduly
prejudiced Barker & Little. Before proceeding to a second trial, Barker & Little and
Klein-Cadotte settled Klein-Cadotte’s claims.2
Hamilton was the personal guarantor on the loans and credit lines provided by
lenders to Barker & Little. After the original jury verdict, banks and lenders refused
to continue extending credit to Hamilton. As a result, Hamilton’s personal empire of
real estate holdings crumbled, causing Hamilton to lose dozens of commercial and
residential properties, hundreds of mobile homes and land parcels, and his home.
In this action, Hamilton sued Hurd and Bangs McCullen (collectively
“appellees”) based on their representation in the Klein-Cadotte litigation. Hamilton
contends appellees committed a series of negligent errors during their representation,
which “ultimately forced the underlying retaliation and sexual harassment case to be
tried to verdict, when it instead could, and should, have been settled confidentially or
otherwise disposed of well before trial.” Hamilton claims the appellees’ negligence
resulted in a multi-million dollar award against Barker & Little, which in turn caused
banks and lenders to refuse to continue lending credit to Hamilton.
Approximately six months after filing an answer to Hamilton’s complaint,
appellees filed a motion for judgment on the pleadings pursuant to Federal Rule of
Civil Procedure 12(c). The parties jointly moved to have the court suspend discovery
to allow the court to rule on the Rule 12(c) motion. After Hamilton filed a brief in
opposition that attached supporting documents, the court granted the motion to stay
discovery and gave the parties notice that it would be treating the Rule 12(c) motion
as one for summary judgment. See Fed. R. Civ. P. 12(d). The parties submitted
2
Hamilton indicates that the settlement amount was ten times what the claim
could have been bought from the Klein-Cadotte bankruptcy trustee. However, neither
party includes a record citation to show the settlement amount.
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further briefing, and Hamilton’s attorney filed an affidavit seeking further discovery
under Federal Rule of Civil Procedure 56(f).3 The court ruled in favor of the appellees
and dismissed Hamilton’s claims. As part of its rationale, the court found that
Hamilton’s Rule 56(f) affidavit was insufficient because it failed to include “any
statement as to the specific facts which . . . discovery may produce which would be
essential to plaintiff’s opposition to defendant’s motion for summary judgment.”
Hamilton v. Bangs, McCullen, Butler, Foye & Simmons, L.L.P., No. 10-5009, 2011
WL 902489, at *7 (D.S.D. Mar. 15, 2011). Hamilton timely appealed.
II.
Hamilton argues the district court erred in dismissing his legal malpractice
and breach of fiduciary duty claims.
“To prevail in his legal malpractice action, [a plaintiff] must . . . prove the four
basic elements of negligence: (1) an attorney-client relationship giving rise to a duty;
(2) the attorneys, either by an act or a failure to act, violated or breached that duty;
(3) the attorneys’ breach of duty proximately caused injury to the client; and (4) actual
injury, loss, or damage.” Yarcheski v. Reiner, 669 N.W.2d 487, 493 (S.D. 2003).4
3
Rule 56(f) was the applicable rule at the time Hamilton’s counsel filed his
affidavit asking for further discovery. “On December 1, 2010, the Federal Rules of
Civil Procedure were amended, and it is now Rule 56(d) that allows a court to grant
additional time for discovery to the nonmoving party in a motion for summary
judgment.” Hargis v. Access Capital Funding, LLC, 674 F.3d 783, 792 n.4 (8th Cir.
2012).
4
“Federal courts sitting in diversity apply the choice-of-law rules of the forum
state.” Cicle v. Chase Bank USA, 583 F.3d 549, 553 (8th Cir. 2009). “South Dakota
has adopted the most significant relationship test as its choice of law rule in tort
cases.” Penney v. Praxair, Inc., 116 F.3d 330, 333 n.4 (8th Cir. 1997). The district
court found, and the parties agree, that the law of South Dakota should apply. We
agree that South Dakota has the most significant relationship to the facts of this case
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A breach of fiduciary claim shares essentially the same four elements. “[A] plaintiff
must prove: (1) that the defendant was acting as a fiduciary of the plaintiff; (2) that he
breached a fiduciary duty to the plaintiff; (3) that the plaintiff incurred damages; and
(4) that the defendant’s breach of fiduciary duty was a cause of the plaintiff’s
damages.” Grand State Prop., Inc. v. Woods, Fuller, Shultz, & Smith, P.C., 556
N.W.2d 84, 88 (S.D. 1996) (citation and line breaks omitted).
The district court granted judgment in favor of appellees on Hamilton’s claims
for two reasons. First, the district court found that Hamilton failed to produce expert
evidence to support his claim that Hurd’s conduct violated the standard of care or
breached a duty. Second, the court found that Hamilton failed to demonstrate a legal
causal connection between appellees’ actions and his injuries. In his appeal, Hamilton
argues the district court erred by: (1) relying on a lack of expert testimony when
appellees had not raised the issue and where notice was not given to the parties; (2)
failing to allow Hamilton further discovery under Federal Rule of Civil Procedure
56(f); and (3) finding Hamilton failed to support the proximate causation element for
his claims of attorney negligence and breach of fiduciary duty. We focus our attention
on Hamilton’s latter two arguments because we find them dispositive.
A.
We first address Hamilton’s contention that the court erred by not postponing
the summary judgment ruling until after further discovery was completed. “We
review a district court’s denial of a motion filed under Rule 56(f) for abuse of
discretion.” Marksmeier v. Davie, 622 F.3d 896, 903 (8th Cir. 2010).
“As a general rule, summary judgment is proper ‘only after the nonmovant has
had adequate time for discovery.’” Iverson v. Johnson Gas Appliance Co., 172 F.3d
and thus apply South Dakota substantive law.
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524, 530 (8th Cir. 1999) (quoting In re TMJ Litig., 113 F.3d 1484, 1490 (8th Cir.
1997)). “Nonmovants may request a continuance under Rule 56(f) until adequate
discovery has been completed if they otherwise cannot present facts sufficient to
justify their opposition. This option exists to prevent a party from being unfairly
thrown out of court by a premature motion for summary judgment.” Id. (citing
Celotex Corp. v. Catrett, 477 U.S. 317, 326 (1986)). Yet Rule 56(f) “‘is not a shield
that can be raised to block a motion for summary judgment without even the slightest
showing by the opposing party that his opposition is meritorious.’” Humphreys v.
Roche Biomedical Labs., Inc., 990 F.2d 1078, 1081 (8th Cir. 1993) (citation omitted).
A Rule 56(f) affidavit must “set forth ‘specific facts further discovery might uncover,’
or what information further discovery might reveal.” Anuforo v. Comm’r of Internal
Revenue, 614 F.3d 799, 808 (8th Cir. 2010) (citation omitted).
In the instant case, Hamilton’s attorney filed an affidavit lamenting the fact that
no depositions had yet taken place and indicating that Hamilton intended to take the
depositions of, inter alia: Hurd, representatives from various banks and lenders, and
the Klein-Cadotte bankruptcy trustee. The affidavit stated that “this additional
discovery will further bolster and support plaintiff’s claims and raise additional
disputed facts that would defeat defendant’s motion.” However, this affidavit failed
to meet Rule 56(f)’s requirement of showing what specific facts or information further
discovery might reveal. Because Hamilton failed to show what further facts he might
be able to uncover if he was given further opportunity for discovery, the district court
did not abuse its discretion in denying his request to postpone ruling on the summary
judgment motion. See Anuforo, 614 F.3d at 808 (finding no abuse of discretion where
party’s affidavit seeking more discovery failed to meet Rule 56(f)’s requirements).
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B.
Even if we agreed with Hamilton that his attorney’s Rule 56(f) affidavit was
adequate, Hamilton would still have to overcome the district court’s finding that
Hamilton could not establish proximate causation to support his claims. “We review
de novo a district court’s grant of summary judgment, considering the evidence and
all reasonable inferences in the light most favorable to the non-moving party.”
Anheluk v. Ohlsen, 459 F.3d 874, 877 (8th Cir. 2006).
“[T]o support a recovery in negligence, the defendant’s act must have
proximately caused the plaintiff’s injury.” Goff v. Wang, 296 N.W.2d 729, 730 (S.D.
1980). “A proximate or legal cause is a cause that produces a result in a natural and
probable sequence and without which the result would not have occurred.” Estate of
Gaspar v. Vogt, Brown & Merry, 670 N.W.2d 918, 921 (S.D. 2003). Proximate
causation “excludes the idea of legal liability based on mere speculative possibilities
or circumstances and conditions remotely connected to the events leading up to an
injury.” Mulder v. Tague, 186 N.W.2d 884, 887 (S.D. 1971). “While legal or
proximate cause is generally a jury question, a causal relationship between the alleged
[negligence] and injury is not presumed.” Burley v. Kytec Innovative Sports Equip.,
Inc., 737 N.W.2d 397, 409 (S.D. 2007). “To survive a motion for summary judgment,
[a plaintiff] ‘must present more than unsupported conclusions and speculative
statements, which do not raise a genuine issue of fact.’” Id. (citations and internal
alterations omitted).
Hamilton’s claim that his injuries resulted from the negligence of his counsel
requires agreeing to a series of conclusions. First, after the original Klein-Cadotte
verdict, Hamilton’s company suffered a judgment against it for $4.1 million. As a
result of this verdict, Hamilton and his company were the subject of negative news
coverage. As a result of this bad publicity, Barker & Little and Hamilton were unable
to get credit from banks and lenders. Unable to secure further credit, Barker & Little
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defaulted on its loans. Since Hamilton was the personal guarantor of Barker & Little,
Hamilton lost his entire net worth of at least $21 million. Hamilton argues that this
series of unfortunate events could all have been avoided if Hurd had counseled
Hamilton to buy Klein-Cadotte’s claim from the bankruptcy trustee or if Hurd had
taken a different approach during the course of the trial.5 If Hurd had bought the
claims out of bankruptcy, Hamilton surmises, the case would never have gone to trial,
Hamilton’s company would have avoided bad press, and financing would have
remained in full supply. This best-case scenario presupposes that the bankruptcy
trustee would have allowed Hurd to buy the claim and that Hamilton would have been
otherwise able to secure financing.
Even if we remanded the case for further discovery and Hamilton was able to
present evidence supporting his theory of the case, we agree with the district court that
any negligent action by Hurd is too attenuated to be a proximate cause of the loss of
Hamilton’s net worth. A foreseeable result of Hurd’s alleged negligence was that an
adverse money judgment would be returned against Hamilton. Yet no judgment was
rendered against Hamilton individually during the Klein-Cadotte litigation.6
Although the South Dakota Supreme Court has not previously dealt with a tort
case with similar facts, we believe the court would decline to find that Hurd’s alleged
negligence was a proximate cause of Hamilton’s harm. See Goff, 296 N.W.2d at 730
(holding to establish proximate causation, “‘the defendant’s conduct [must have] such
an effect in producing the harm as to lead reasonable men to regard it as a cause’ of
the plaintiff’s injury” (quoting Mulder, 186 N.W.2d at 887)). Here, the negative
5
Hurd’s alleged negligence at trial included: failing to object to inflammatory
statements by Klein-Cadotte’s counsel during opening argument; failing to block the
reading of a memorandum addressed to Hamilton that was protected by attorney-client
privilege; and stipulating to Hamilton’s net worth without a limiting instruction.
6
An adverse judgment was returned against Barker & Little, but Barker & Little
is not a party in this action.
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publicity received after the verdict was not a natural and probable consequence of any
action taken by Hurd at trial. Cf. Wattigny v. Lambert, 408 So.2d 1126, 1139 (La. Ct.
App. 1981) (finding attorney who filed judicial pleading containing statements which
were clearly defamatory and which were then widely disseminated by newspapers and
radio was liable for negligence); Wissore v. Alvey, 562 N.E.2d 978, 984-85 (Ill. Ct.
App. 1990) (finding sufficient allegation of attorney malpractice where attorneys’
incorrect advice to client resulted in contempt citation against client). Instead,
Hamilton received public attention for his own actions, actions which he had taken
prior to being represented by counsel and which were the basis of the sexual
harassment lawsuit. Cf. Weiss v. Van Norman, 562 N.W.2d 113, 117 (S.D. 1997)
(finding plaintiff was not liable in breach of contract action as a result of any advice
from his attorney; instead, “[t]he obligation was contractual and established long
before” plaintiff sought his attorney’s advice). Even if we agreed that Hurd’s actions
in a continual sequence led Hamilton to receive negative publicity, ruling in
Hamilton’s favor would require us to go even further to find a causal link between the
bad press and Hamilton’s inability to secure financing. This is not the kind of result
that can legally be expected for failing to settle a lawsuit, proceeding to trial, and
securing a verdict in a client’s favor. We find that Hamilton’s loss of net worth is too
attenuated from any negligence by appellees.
Any negligence or breach of fiduciary duty by appellees did not proximately
cause Hamilton’s injuries. The district court correctly granted summary judgment in
favor of appellees on this basis. We therefore decline to address Hamilton’s
additional claim of error based on the district court’s dismissal of his claims for lack
of expert evidence on the requisite standard of care.
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III.
We affirm.
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