Opinion
NO. 218-2008-CV-1062
05-16-2012
Frederick W. Murdock, Esq. v. Berge M. Nalbandian
ORDER
The Plaintiff, Frederick W. Murdock, Esq. ("Murdock"), has brought suit against the Defendant, Berge M. Nalbandian ("Nalbandian"), one of his former clients, claiming default on several promissory notes owed to Murdock by Nalbandian in connection with certain business transactions. As a defense, Nalbandian asserts that when Murdock entered into these contracts, which gave rise to these loans, he violated New Hampshire's Rules of Professional Conduct, and so the contracts are void as a matter of public policy. Murdock denies that he violated the Rules of Professional Conduct, and asserts that even if the loans were violative of the Rules, they were ratified by Nalbandian. To support his position, Nalbandian has offered an expert report from Peter G. Beeson, Esq. In response, Murdock has filed a Motion to Strike Expert Testimony asserting that the Expert's proposed testimony invades the province of the jury. Nalbandian objects. For the reasons stated in this Order, the motion is GRANTED IN PART AND DENIED IN PART.
I
This case involves a series of loans that date back to the late 1980s that Murdock arranged for Nalbandian. These loans were through one of two lenders: Jana Corporation ("Jana") or 527 Limited Partnership ("527"). When the loans were arranged, Murdock was the treasurer of Jana or the sole general partner of 527. When Murdock arranged loans between 527 and Nalbandian, 527 was also one of Murdock's clients. The dates, specific amounts, interest rates, and circumstances surrounding each loan are detailed in the Court's Order of October 26, 2010, and need not be repeated here.
In response to Murdock's suit, Nalbandian has asserted in defense that Murdock entered into these contracts in violation of the Rules of Professional Conduct and, thus, as a result, they are void as a matter of public policy. In support of this defense, Nalbandian has provided an expert report, which Attorney Peter Beeson prepared. The report provides opinions on the following issues:
In the Court's Order of October 26, 2010, it found that, assuming the truth of Nalbandian's allegations, the contracts are voidable, not void as Attorney Beeson asserts. The Court found that, to the extent that Nalbandian's defense sought a declaration that the contracts were void, the counterclaim must be stricken. In Attorney Beeson's expert report, he asserts that, in his opinion, the contracts are void. This issue will be addressed herein.
1) Whether Murdock's simultaneous representation of the borrower and lender in connection with these loans; his personal financial involvement in loans to his client; and the ownership interests held by Murdock in two of the lending entities; resulted in conflicts of interest under the Rules of Professional Conduct;
2) If so, whether Murdock could properly request that Nalbandian waive these conflicts so that he could continue as a lawyer in the transactions; i.e. whether the conflicts could be cured by client waiver;
3) Regardless of answer to 2, whether the May 15, 1986 affidavit Nalbandian executed acted as an effective waiver of the conflicts of interest for the loan then being considered or for any subsequent loans;
4) Whether the commercial loans to Nalbandian from Murdock and 527 complied with requirements of 1.8(a);
5) Whether Murdock's conflicts of interest adversely impacted his representation of Nal-bandian; and
6) Whether Murdock's conflicts of interest rendered the loan contracts void as a matter of public policy.
In February of 2012, Murdock filed a Motion to Strike Attorney Beeson's Expert Testimony. In support of this motion, Murdock makes two main arguments: (1) the proposed testimony "impermissibly invades the exclusive provinces of this Court and the jury: the Court, by offering opinions regarding the law, and the jury by making factual determinations;" and (2) "to the extent Beeson intends to offer opinions regarding applicable standards of care in commercial real estate lending, neither his report nor his resume provide any basis to suggest that he is qualified to do so." (Pl. Mot. To Strike Expert Test. 2.) Nalbandian objects and asserts that "Peter Beeson can offer opinions on whether Attorney Murdock's conduct violated the Rules" of Professional Conduct. (Def. Obj. 4.) To support this proposition, Nalbandian argues that "it logically follows that an expert witness will be needed to explain how the facts in this case interplay with the [Rules of Professional Conduct] to a jury." (Id.) As to Murdock's second argument, Nalban-dian replies that, in order to offer opinions on legal ethics, Beeson does not need to be a practicing commercial lending lawyer to render an opinion on the loans in question.
A Motion to Strike is not a common law pleading; in federal practice, it has a very limited use: for striking "scandalous or impertinent matter" from a pleading. FRCP 12(f). Such motions are generally disfavored because they are often filed as a dilatory tactic. See, e.g. Riemer v. Chase Bank, NA, 275 F. Supp. 492, 494 (N.D. Ill. 2011). The Court assumes that the Motion is question is a Motion in Limine to bar Attorney Beeson's testimony and will treat it as such.
II
In New Hampshire, expert testimony is admissible so long as it will aid the jury in understanding the evidence or making a decision on a pertinent issue. N.H. R. Evid. 702; Freeman v. Scahill, 92 N.H. 471, 471 (1943); Rau v. First Nat. Stores, 97 N.H. 490, 495 (1952); State v. Gourlay, 148 N.H. 75, 81 (2002). The admissibility of expert testimony in New Hampshire is within the discretion of this Court. Rau, 97 N.H. at 495; Johnston by Johnston v. Lynch, 133 N.H. 79, 80 (1990) (citation omitted). The threshold question "is whether the witness, by either study or experience, has knowledge on the subject matter of his or her testimony so superior to that of people in general concerning it that his or her views will probably assist the triers of fact." Gourlay, 148 N.H. at 81. Whether the opinion testimony bears on an ultimate issue is of no moment; there is no doubt that, in the appropriate circumstances, New Hampshire Rule of Evidence 704 allows testimony regarding the ultimate issue on a case to be submitted. See Johnston, 133 N.H. at 80.
However, a witness, expert or otherwise, may not testify to conclusions of law. Saltzman v. Saltzman, 124 N.H. 515, 524 (1984). The New Hampshire Supreme Court, although only addressing the issue of a police officer testifying on the issues of fault and causation, pertinently held:
A witness may not testify to an opinion or conclusion which contains matters of law. On mixed questions of law and fact, the jury, after being properly instructed by the court as to the law, can draw the required conclusion from the facts as well as can the expert, so that the opinion of the witness, be he expert or layman, is superfluous in the sense that it will be of no assistance to the jury.Id. at 524-25 (citation and quotation omitted). Where the evidence available to the jury is the same evidence the expert uses to render an opinion about a conclusion based in law, the expert's testimony will not assist the jurors in their search for the truth and the opinion must be excluded. See Johnston, 133 N.H. at 88.
Although the rule has not been applied in other contexts in New Hampshire, it is universal; while an expert may testify to questions of foreign law as a question of fact, U.S. v. Pre-Columbian Artifacts, 845 F. Supp. 544, 546 (N.D. Ill. 1993), allowing an expert to testify to pure questions of law is inconsistent with the role of the judge and jury, and is considered reversible error. See, e.g., Greenberg Traurig of New York, P.C. v. Moody, 161 S.W.2d 56, 90-99 (Tex. Ct. App. 2005). As the court noted in Burkhart v. Washington Metropolitan Area Transit Authority, 112 F.3d 1207, 1213 (D.C.Cir. 1997), "[e]ach courtroom comes equipped with a 'legal expert' called a judge, and it is his or her province alone to instruct the jury on relevant legal standards." See also U.S. v. Cross, 113 F.Supp.2d 1282, 1284 (S.D. Ind. 2000).
However, in legal malpractice cases, expert testimony is, in fact, required to assist the jury in determining whether a lawyer breached the duty of care he owed to his client and whether that breach was the cause of his client's damages. Estate of Sicotte v. Lubin and Meyer, 157 N.H. 670, 674 (2008); Carbone v. Tierney, 151 N.H. 521, 527-28 (2004). This is so because the duty of care placed upon an attorney to exercise reasonable professional care, skill, and knowledge in providing legal services to his client; whether an attorney's actions breach that duty; and whether the breach legally caused the resultant harm done to the client, are not subjects "within the realm of common knowledge and everyday experience." Carbone, 151 N.H. at 527. Instead, the standard of care, whether it was breached, and whether it was the legal cause of the client's harms are questions that are "distinctly related" to the legal profession "as to be beyond the ken of the average layperson." Id. Without expert testimony on these matters, the jury would be unable to reach conclusions on these questions and, thus, the expert testimony is required to assist the jury.
Significantly, when an expert testifies on the issue of whether an attorney breached the standard of care owed to his client in a legal malpractice case, the expert is not required to testify to the content of any of the New Hampshire Rules of Professional Conduct—in fact, "a violation of a Rule may be evidence of breach of the applicable standard of care," but serves as nothing more. N.H. R. of Prof. Conduct, Statement of Purpose (emphasis added). The standard of care a lawyer owes to his client is a fluid topic: experts testifying on the subject may be required to testify to a number of things including what a reasonable lawyer should have done under the cir- cumstances and what result would have followed from reasonable conduct. See Carbone, 151 N.H. at 528. This standard is not codified in the Rules of Professional Conduct or in any other law. Instead, this kind of testimony is commonly based on experience and professional awareness. In this way, the testimony assists the jury in rendering a proper decision by providing additional evidence.
On the other hand, to determine whether a lawyer has violated one of the Rules of Professional Conduct, a trier of fact need look no further than the Rules themselves. The Rules have the force and effect of law: they are "promulgated and amended by the Supreme Court of the State of New Hampshire with due input from members of the New Hampshire Bar and interested members of the public." N.H. R. of Prof. Conduct, Statement of Purpose; N.H. CONST. PT. 2, ART. 73-A. For this reason, determining whether a lawyer violated a Rule is wholly separate and distinct from determining whether a lawyer committed legal malpractice. Where expert testimony is only a recitation of the facts as applied to the Rules in order to reach an opinion, the testimony does not provide any additional assistance than when the Court instructs the jury on the pertinent Rules and the jury applies the facts to these Rules in its own right.
Finally, a trial judge must insure that the testimony is helpful to a jury, and that it does not usurp the jury's role. Attorney Beeson is a capable and qualified expert. But where an expert's report "resonate[s] as a lawyer's closing argument rather than an expert analysis" it usurps the function of the jury. Tuli v. Brigham & Women's Hospital, Inc., 592 F.Supp.2d 208, 211 (D. Mass. 2009). "Proffered expert testimony generally will not help the trier of fact when it offers nothing more than what lawyers for the parties could say in their closing." Pepin v. PC Connection, Inc., Merrimack County Superior Court No. 08-C-470 (June 14, 2010) (McNamara, J.) (citing U.S. v. Frazier, 387 F.3d 1244, 1262-63 (11th Cir. 2004)). Moreover, the jury could be prejudiced in hearing one party's desired outcome from an expert witness. Id.; Tuli, 595 F.Supp.2d at 211. The jury may be improperly influenced and determine that it should base its decision on the case solely on the expert's testimony.
III
With these principles in mind, the Court addresses Attorney Beeson's opinions seriatim.
At the outset, Attorney Beeson provides a section, titled the "Applicable Law," which details the text of each of the Rules of Professional Conduct at issue as they were published in 1986. Attorney Beeson also explains the differences between the New Hampshire versions of the rules and the ABA model rules. Further, Attorney Beeson provides the relevant portions of the comments to the rules. Following his recitation of the pertinent Rules of Professional Conduct, Attorney Beeson goes on to explain his answer to each of the six questions.
In his first opinion, Attorney Beeson asserts that "Murdock's simultaneous representation of Nalbandian (the borrower) and Jana Corporation or 527 Limited Partnership (the lenders) in commercial loan transactions created a 'direct adversity' conflict of interest under Rule 1.7(a)." (Expert Rep. 9.) Attorney Beeson also determines that, in his opinion, this conflict "was aggravated by the substantial personal financial stake held by Murdock and his partnership in the loans and by his simultaneous management and fiduciary responsibilities as general partner to the partnership—both 'material limitation' conflicts of interest under Rule 1.7(b)." (Id.) In reaching these conclusions, he asserts that the conflict rules are designed to ensure that lawyers do not breach the fiduciary duty of loyalty to their clients and that "[t]he contemporaneous roles and duties that Murdock assumed in connection with Nalbandian's loan agreements" gave rise to a breach of this duty and "profound conflicts of interest."
This opinion is not admissible because it offers nothing more than a recitation of the facts as applied to the pertinent law. This is improper expert testimony because it will not provide the jury with any assistance. The jury can determine questions about whether these transactions created both "direct adversity" and "material limitation" conflicts under Rule 1.7(a) and (b) based on information that Nalbandian's counsel could introduce through fact witness testimony or cross-examination of Mr. Murdock. Thus, this portion of Attorney Beeson's report is inadmissible.
Counsel for Nalbandian can establish through fact witnesses or cross-examination of Mr. Murdock that both Nalbandian and 527 were Murdock's clients when certain loans were entered into, that Murdock was general partner to a lender, treasurer to a lender, trustee for the lender, that he was lender himself, and that, in these positions, he owed certain duties to these parties. (See Expert Rep., 9-10.)
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In his second opinion, Attorney Beeson addresses whether Nalbandian could have waived these purported conflicts. In this section, Attorney Beeson provides the standard with which a client could give consent to a conflict: through "consent after consultation and with knowledge of the consequences." (Id. at 10.) He goes on to explain that some conflicts of interest are "so fundamental" that they become unwaivable. Using the comments to the 1986 edition of the Rules, Attorney Beeson highlights which categories of conflict prevent a lawyer from seeking a client's consent. He points out that the comments to the 1986 ABA Model Code of Professional Responsibility, included with the 1986 edition of the New Hampshire Rules of Professional Conduct, discuss categories of conflict for which waiver cannot be sought:
A client may consent to representation notwithstanding a conflict. However, as indicated in paragraph (a)(1), with respect to representation directly adverse to a client, and paragraph (b)(1), with respect to material limitations on representation of a client, when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent.(Expert Rep. 11.) (emphasis added).
According to Attorney Beeson, the "disinterested lawyer" standard discussed in the ABA Model Rules has become part of the "harsh reality" test that New Hampshire uses to analyze whether client consent can cure a conflict of interest, i.e. whether the conflict is waivable. Citing several ethical opinions, Beeson points out that:
Under (the "harsh reality" test), a lawyer attempting to resolve (whether client consent could cure a conflict) should ask himself or herself whether, if a disinterested lawyer were to look back at the inception of this representation once something goes wrong, would that lawyer seriously question the wisdom of the first attorneys requesting the client's consent to this representation or question whether there had been full disclosure to the client prior to obtaining the consent.(Expert Rep. 11.) (emphasis supplied).
Beeson also utilizes New Hampshire Ethics Committee Formal Opinion ("ECFO") decisions and decisions from the Supreme Court to flesh out the standards required to determine whether a conflict is waivable. Using these authorities, Beeson reaches the ultimate opinion:
In my opinion, no disinterested lawyer could look at the transactions underlying this litigation and conclude that Murdock's dual representation of lender and seller was permissible even if Murdock had secured Nalbandian's consent to the conflicts "with knowledge of the consequences." Standing alone, the dual representation does not pass the harsh reality test. Murdock's substantial financial involvement in the loan transactions, the positions that he held with the lending entities (general partner of 527 Limited Partnership and treasurer of Jana Corporation; his position as Trustee (as well as lawyer) for the Investment Specialties Trust when the July 1988 loan was made; and his management and fiduciary roles in the lending entities); added additional layers of conflict that could not be waived, and that left Nalbandian without an attorney prepared for or able to exercise independent judgment on his behalf throughout the relevant time frame of this case.(Id. at 13.)
Attorney Beeson's opinion regarding the "disinterested lawyer" standard would assist the jury in rendering a decision about whether or not Murdock breached the Rules which govern conflicts of interest. This opinion does more than recite the law and tell the jury how the facts apply to it; like an expert in a legal malpractice case, Beeson considers an objective standard of a "disinterested lawyer" and applies the facts to that standard. Similar to testimony concerning how a reasonable lawyer would conduct himself in a legal malpractice case, expert testimony about what a disinterested lawyer would do provides the jury with additional evidence to help determine the correct decision. Thus, the opinion contained in Attorney Beeson's second opinion is admissible.
The Court acknowledges that, in order to provide testimony regarding how a "disinterested lawyer" would view the circumstances surrounding Murdock's potential conflicts of interest to demonstrate Beeson's opinion that these particular conflicts were not waivable, Attorney Beeson may need to provide some introductory guidance for the jury as to what conflicts are and how they are cured. This is so that the testimony makes logical sense and this will be permitted.
In his third opinion, notwithstanding his view that the conflict is not waivable, Beeson avers that the May 15, 1986 affidavit that Nalbandian executed does not serve as an effective waiver of his lawyer's conflicts of interest. In Beeson's opinion, the affidavit is an inadequate waiver because it does not "comply with the requirements for an effective waiver under Rules 1.7(a) and 1.7(b)" in that it "does not indicate that a material or meaningful conflict exists and it does not identify any 'consequences' of the conflict." (Id. at 14.) More specifically, Beeson points out that the affidavit fails to indicate the ways in which Murdock's duties to the lenders would require him to act contrary to the interests of Nalbandian, including "drafting lender-friendly loan documents, advice to JANA on the enforcement of Nalbandian's contract obligations, or the ability to share confidential information about Nalbandian's ongoing business that the lender, if represented by separate counsel, would not be able to access." (Id.) Beeson goes on to explain that the advice "'to seek additional counsel' does not eliminate the conflict; or lessen his duty as Nalbandian's lawyer in the transaction to explain the conflicts and their potential ad- verse consequences." (Id.) In his opinion, the advice to seek other counsel would fall on deaf ears since Murdock represented Nalbandian since the 1970s. In other words, Beeson asserts that "unless Nalbandian understood that Murdock had an ethical obligation to represent Nalbandian's adversary as effectively as possible, and that Murdock's financial stake substantially undermined his loyalty to Nalbandian's interests, he could not be expected to see the purpose in securing, and paying for, a separate lawyer th [sic] negotiate the terms of the loan agreement." Id.
Whether the affidavit was an effective waiver does not require consideration of any objective standard. If counsel for Nalbandian seeks to show that Nalbandian never waived any conflicts because he did not "consent after consultation and with knowledge of the consequences," as Rules 1.7(a)(2) and (b)(2) require, they can do so through testimony of fact witnesses, cross-examinations, and exhibits. Moreover, opinions that Nalbandian would not seek independent counsel due to his close relationship with Murdock are arguments that can be made based on facts in counsel's closings. The Court notes, from its Order of April 7, 2011, declining to find that the Continuing Representation Rule, even if recognized in New Hampshire, would be applicable in this case, that the issue of whether or not Murdock and Nalbandian had a close relationship is likely to be hotly contested, and Attorney Beeson's testimony on this point would amount to nothing more than a "well-credentialed practitioner saying: 'take my word for it; in my judgment,'" the waiver was not effective. Tuli, 592 F.Supp. 2d at 211. Thus, his opinion is not admissible.
In his fourth opinion, Beeson asserts that the commercial loans to Nalbandian from Mur-dock and 527 did not comply with the requirements of Rule 1.8(a). To reach this conclusion, he first states that, in his opinion, the commercial loans were business transactions with Nalbandian and, thus, fall within the purview of Rule 1.8(a). Beeson does not elaborate on why the loans should be considered business transactions. Nevertheless, Beeson asserts that the business transactions between Murdock and Nalbandian violated Rule 1.8(a) because: (1) "there is no evidence that Murdock attempted to comply with the 'consultation' requirement of Rule 1.8(a)(1);" (2) "[t]here is also no evidence that Nalbandian was given a 'reasonable opportunity to seek the advice of independent counsel' as required by Rule 1.8(a)(2);" and (3) "there is a serious question whether loan documents that contain cross-collateralization provisions, and that do not allow for partial releases for portions of the collateral, were 'fair and reasonable' as required by Rule 1.8(a)(1)." (Expert Rep. 15-16.) Without citing any additional authority, Beeson goes on to discuss the intention of the consultation requirement in Rule 1.8(a)(1) and that the provisions which raise the "fair and reasonable" question would have, in his opinion, "been challenged by an attorney working exclusively for Nalbandian." (Id.)
This testimony does not require expertise. Any violations of Rule 1.8(a) can be proven through fact witnesses, cross-examinations, and exhibits. Rule 1.8(a) prohibits entering into business transactions with clients unless certain requirements are met; Attorney Beeson's report states that "there is no evidence" that Murdock attempted to comply with these requirements and that there is a "serious question" whether the transactions were "fair and reasonable" as the Rule requires. These are determinations which are grist for the jury mill. A jury of laypeople can determine whether there was appropriate consultation and appropriate opportunity to meet with outside counsel based on the facts before it. It is not for an expert to decide the quality and quantity of evidence presented in a case to determine a central issue. Further, determinations based on what is "fair and reasonable" can be made with the guidance of counsel reiterating evidence in closing arguments. Finally, to the extent that Beeson purports to opine on whether the real estate financing was commercially reasonable, he is not qualified to do so. Thus, this opinion is not admissible.
In his fifth opinion, Attorney Beeson provides a long narrative describing why Mur-dock's conflicts of interest impacted his representation of Nalbandian. Beeson asserts that "[h]ad Murdock complied with the governing conflict Rules, Nalbandian would have been represented by a separate lawyer looking out for his interests only. And if Nalbandian received competent, independent legal advice, that advice could certainly have addressed management of Nalban-dian's debt load, demands for precise accountings from creditors, bankruptcy, the homestead exemption, and other mechanisms for debt relief that, while not necessarily favored by Murdock or his clients, may have been in Nalbandian's best overall interests." (Expert Rep. 17.) To support this conclusion, Beeson goes on to list specific examples of conduct that benefited Murdock and his other clients at Nalbandian's expense.
While this is testimony that could be elicited through fact witnesses and exhibits and argued in closing, it is also not relevant to the issue of whether Murdock violated the Rules of Professional Conduct. This testimony would only be relevant in a legal malpractice or disciplinary action, but in this case, it would be prejudicial. N.H. R. of Evid. 401, 402, 403. There is no reason a jury cannot understand the consequences of these loans. Attorney Beeson's testimony will not aid the jury and this opinion must be excluded.
Finally, Beeson devotes the last section of his report to describing why, in his opinion, Murdock's violations of the conflict rules rendered the loan contracts void as against public policy. To reach this conclusion, Beeson cites Kalled v. Albee, 142 N.H. 747 (1998), which stands for the proposition that a fee-sharing agreement entered into by two lawyers in violation of the requirements of the Rules of Professional Conduct is "contrary to public policy and . . . void." Beeson asserts that, "as in Kalled, there are no circumstances under which loan agreements developed by Murdock through simultaneous representation of both his lender/clients and Nalbandian, his borrower/client, can withstand ethical scrutiny." (Expert Rep. 20.) Further, Beeson points out that the conclusion he reaches is even clearer "in light of Murdock's failure to comply with several of the mandatory requirements of Rule 1.8(a) in connection with his personal loans and those of his partnership ...." Id.
Attorney Beeson does not address the fact that in this Court's Order of October 26, 2010, it found, that in the event Murdock was found to have violated the Rules of Professional Conduct, the contracts would be voidable, not void. The Court distinguished Kalled v. Albee, 142 N.H. 747, 751 (1998) and relied on DiLugio v. Providence Auto Body, 755 A.2d 757 (R.I. 2000), which states the majority rule that, even if loans violate the Rules, they are voidable and not void. But even more importantly, the issue of whether the loans violate public policy is a pure issue of law, and not an issue for the jury. Attorney Beeson may not present his opinion on this issue.
IV
In sum, Attorney Beeson may testify to his opinion based on the "disinterested lawyer" standard, regarding whether or not Murdock could properly request that Nalbandian waive the conflict in the loan transaction so that he could continue as a lawyer in the loan transaction. His other opinions must be excluded.
SO ORDERED.
_________________________
Richard B. McNamara
Presiding Justice