Patrick J. Rowland, Appellant, vs. Dennis L. Monroe, et al., Respondents.
Annotate this Case
State of Minnesota
in Court of Appeals
C9-96-707
Patrick J. Rowland,
Appellant,
vs.
Dennis L. Monroe, et al.,
Respondents.
Filed October 15, 1996
Affirmed
Crippen, Judge
Hennepin County District Court
File No. 9417260
James H. Kaster, Steven A. Smith, Nichols Kaster & Anderson, 4644 IDS
Center, 80 South Eighth Street, Minneapolis, MN 55402-2242 (for Appellant)
Kay Nord Hunt, Stephen C. Rathke, Lommen, Nelson, Cole & Stageberg, P.A.,
1800 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for
Respondents)
Considered and decided by Crippen, Presiding Judge, Parker, Judge, and
Short, Judge.
Unpublished Opinion
CRIPPEN, Judge (Hon. Isabel Gomez, District Court Trial Judge)
Appellant contends that there are genuine issues of material fact on his
claims of legal malpractice, breach of fiduciary duty, fraud and negligent
misrepresentation. We affirm the trial court's summary judgment.
Facts
Respondent Dennis Monroe is a licensed attorney and a partner in the law
firm of Krass, Monroe & Moxness and has substantial legal experience in the
area of franchising. Respondent is also chief executive officer of Krass &
Monroe Financial Services, Ltd. In 1988, appellant retained respondent to
assist in a real estate closing. Subsequent to the 1988 real estate
closing, appellant Patrick Rowland hired respondent to prepare his taxes
each year and to plan his estate. Through this attorney-client
relationship, respondent became privy to the specifics of appellant's
financial affairs.
In January 1993, respondent contacted several clients of his law firm,
including appellant, to inform them of an ``investment opportunity'' that
the firm had become ``involved with.'' The investment consisted of upscale
laundry franchises that provided entertainment services such as snacks,
games, and television. The investment was offered by Clean Duds, Inc., a
client of the Krass Monroe law firm. Clean Duds, Inc. formed two
partnerships, Duds N' Suds I and II, for the purpose of developing and
operating several of the laundry franchises in the Twin Cities metropolitan
area.
After appellant received respondent's letter on laundry franchises, he
asked his investment advisor to look into it. Upon reviewing Clean Duds,
Inc. and the partnerships, appellant's investment advisor stated that the
investment was speculative and advised appellant not to invest. Despite
this advice, appellant decided to invest in one of the partnerships.
Appellant met with respondent and Clean Duds, Inc. president Phil Akin in
the Spring of 1993. At the meeting, either Akin or respondent informed
appellant that the partnership he was investing in would not do well the
first year but that it thereafter would become profitable. In addition,
appellant was offered articles that informed him about the bankruptcy of
Clean Duds, Inc.'s predecessor corporation. After the meeting, appellant
personally visited a Duds N' Suds laundry.
In May 1993, appellant executed a Subscription Agreement and Limited
Partnership Agreement for one of the partnerships. Appellant also completed
an Investor Qualification Questionnaire in which he disclosed personal
financial information. The Subscription Agreement that appellant signed
specifically indicated that he would bear the economic risk of the
investment and that the investment was ``speculative'' and involved a
``high degree of risk.''
In the Fall of 1993, respondent learned that Clean Duds, Inc. would not be
able to meet its commitment to finance equipment for the partnership in
which appellant had invested. Still optimistic about the potential success
of the partnerships, respondent and two other investors formed a separate
partnership and borrowed $450,000 to fund equipment under lease to
appellant's partnership. The three investors personally guaranteed the loan
amount. During this time, Clean Duds, Inc.'s financial condition became
worse. Eventually, a workout specialist was brought in to save Clean Duds,
Inc. The specialist informed Clean Duds, Inc.'s Board of Directors that
Clean Duds was in serious financial trouble and that Akin, the president,
was partly to blame. Shortly thereafter, Clean Duds, Inc. and the Minnesota
partnerships were liquidated, and appellant sustained a total loss on his
investment.
Decision
Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with any affidavits, show
that there is no issue of material fact and that the moving party is
entitled to a judgment as a matter of law. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993). In opposing a motion for summary judgment, a
party may not rely on unsubstantiated conclusory statements and allegations
alone; rather, the party must demonstrate that the allegations reasonably
are based on existing facts. Minn. R. Civ. P. 56.05; Bixler ex. rel.
Bixler v. J.C. Penney Co., 376 N.W.2d 209, 215 (Minn. 1985); Hunt v.
IBM Mid Am. Employees Fed. Credit Union, 384 N.W.2d 853, 855 (Minn.
1986). On appeal, this court must review the evidence de novo and in a
light most favorable to the nonmoving party. Fabio, 504 N.W.2d at
761.
I. Legal Malpractice Claim
In an action for legal malpractice, a plaintiff must prove that an
attorney-client relationship exists and that the lawyer's negligence or
breach of contract proximately caused the plaintiff's injuries. Rouse
v. Dunkley & Bennett, P.A., 520 N.W.2d 406, 408 (Minn. 1994); See
Gustafson v. Chestnut, 515 N.W.2d 114, 116 (Minn. App. 1994) (listing
the elements of a malpractice claim not involving the loss of a claim).
Although the element of causation is usually a jury issue, ``proximate
cause can be decided as a matter of law where reasonable minds can arrive
at only one conclusion.'' Raske v. Gavin, 438 N.W.2d 704, 706 (Minn.
App. 1989) (citations omitted) (affirming the trial court's grant of
summary judgment because ``no material issue of fact on proximate cause has
been shown''), review denied (Minn. June 21, 1989); Lennon v.
Pieper, 411 N.W.2d 225, 228 (Minn. App. 1987) (same).
Appellant claims that respondent breached his duty by failing to disclose
interests that conflicted with appellant's interests as an investor. The
record shows that respondent purported to act on appellant's behalf but had
interests as well in (a) representing Clean Duds, Inc., while appellant
made investments in one of its enterprises, (b) earning commissions from
Clean Duds for investments produced, including the investment of appellant,
(c) producing fee and commission expenses for Clean Duds while appellant's
investment was tied to the financial strength of the corporation, and (d)
protecting his own investment in Clean Duds, Inc. While serving these
interests, respondent related to appellant as his lawyer, and any conflict
of the lawyer's interests was substantially enlarged when the lawyer
actively solicited appellant's investment. The trial court concluded, for
the limited purpose of summary judgment, that respondent was acting within
the scope of an attorney-client relationship and that respondent had
breached his duty as an attorney by suggesting an investment without
disclosing the critical facts. But the court also concluded that appellant
had failed to provide any evidence that respondent's actions were the
direct cause of appellant's losses.
Appellant argues that proximate cause is shown by appellant's statement
that he trusted respondent and by the opinion of his expert witness, a
former director for the Lawyers Professional Responsibility Board, that
respondent's actions were the proximate cause of appellant's losses.
Respondent argues that in spite of these claims, appellant failed to
furnish any evidence that he would not have made the investment
notwithstanding respondent's alleged breach. Reciting the testimony of his
expert, appellant argues that this court is required under Fiedler v.
Adams, 466 N.W.2d 39, 43 (Minn. App. 1991), review denied (Minn.
Apr. 29, 1991), to find that a question of material fact exists on the
issue of causation.
Contrary to appellant's assertion, Fiedler did not hold that
material proximate cause questions exist simply because an expert asserts
that they do. In Fiedler, the plaintiffs produced ``detailed
affidavits from three experts on professional ethics, bankruptcy,
commercial transactions, and employee benefit plans.'' Id. The court
in Fiedler looked at the totality of the evidence, including the
opinions of the three experts, and determined that the evidence before the
court was sufficient to create material fact disputes. Although appellant's
expert witness provided an explanation of how respondent's actions
constituted malpractice, his causation opinion was conclusory, not stated
in terms of failure to disclose. And it is not evident that an expert on
the ethics of lawyers has expertise on issues of causation relating to
investments.
By all indications, appellant was well aware of the risks involved when he
elected to make his investment. According to the record, appellant made his
investment contrary to the advice of his trusted investment adviser, after
personally viewing a laundromat and signing forms acknowledging that the
investment was risky and speculative, and fully knowing that the president
of Clean Duds, Inc. was also respondent's client.
Appellant also suggests that respondent is guilty of malpractice by failing
to disclose the weak financial standing of Clean Duds, Inc. But appellant
has made no adequate showing that respondent knew or believed that Clean
Duds was in a perilous financial position. Although appellant argues that
respondent's knowledge that the equipment financing was not in place
demonstrates such knowledge, there is no indication that lack of equipment
financing at the time of appellant's investment would have been fatal to
the venture. Appellant also suggests that the respondent conducted himself
so as to do harm to Clean Duds, Inc. by miring it in legal fees and
commissions. But appellant has failed to show that the fees or commission
caused Clean Duds, Inc. to default on its commitment to finance Duds & Suds
II or that the legal services given to Clean Duds had less economic value
than the fees charged.
Finally, appellant also suggests that respondent should not have proposed
such a risky investment in light of appellant's physical condition and his
resulting special needs. But the trial court noted that notwithstanding
appellant's physical disability, he is a mentally acute individual whose
needs are no different from any other investor. The evidence indicates that
appellant, notwithstanding his physical state, was an aggressive investor.
Speculative investments, by their nature, create the possibility of large
gains and the risk of large losses.
II. Breach of Fiduciary Duty Claim
Absent a fiduciary relationship, one party to a transaction has no duty to
disclose material facts to the other. Midland Nat'l Bank v.
Perranoski, 299 N.W.2d 404, 413 (Minn. 1980). But a fiduciary has a
broad common law duty to disclose all material facts. Appletree Square I
Ltd. Partnership v. Investmark, Inc., 494 N.W.2d 889, 892 (Minn. App.
1993), review denied (Minn. Mar. 16, 1993). An attorney is under a
fiduciary duty to represent clients with undivided loyalty, to preserve
client confidences, and to disclose any material matters bearing upon the
representation of these obligations. Rice v. Perl, 320 N.W.2d 407,
410 (Minn. 1982) (citation omitted).
As to appellant's claim that respondent breached his duty by failing to
inform appellant about Clean Duds' weak financial standing, there is no
evidence tending to show that respondent, at the time appellant made the
investment, knew or should have known that the investment was bad. Although
appellant has provided evidence showing that the financing was not in place
at the time of his investment, he fails to show how respondent should have
known this to be fatal to the venture.
Appellant also claims that there was a breach of respondent's fiduciary
duty when respondent disclosed appellant's financial circumstances to Clean
Duds, Inc. The trial court found that due to appellant's voluntary
completion of the investment documents, he had revealed any private
financial information that he claims respondent used against his interests.
There is no indication that respondent revealed the specifics of
appellant's financial circumstances to third parties at any time before
appellant's decision to invest. Merely suggesting that a person may be
willing to invest does not amount to a breach of fiduciary duty. Finally,
as with the attorney malpractice claim, the record does not contain
evidence that respondent's alleged breach was the cause of respondent's
loss.
III. Fraud and Negligent Misrepresentation Claims
In his claims of fraud or negligent misrepresentation, appellant proceeds
under essentially one theory, claiming that respondent misstated or failed
to state the critical facts discussed earlier in this opinion. The trial
court correctly determined that disclosures on respondent's interests in
the Clean Duds enterprises were not material to appellant's investment
decision, and appellant provided no evidence that respondent knew that the
company would encounter dire financial straits or that the equipment
financing would not have fallen into place. Finally, as to all alleged
misrepresentations or nondisclosures, appellant has failed to provide any
evidence that it was respondent's actions, and not mismanagement at Clean
Duds, that was the proximate cause of appellant's losses.
Affirmed.
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