Opinion
Civil Action No. 00-10341-DPW.
February 4, 2002
MEMORANDUM AND ORDER
Selwyn Cain brings this action for legal malpractice against Steven Kramer, his former attorney, alleging that Kramer's negligence resulted in Cain being found liable for breach of contract in separate litigation before Judge Hinkle in the Massachusetts Superior Court.
Kramer moves for summary judgment, asserting that his negligence was not the proximate cause of Cain's loss, because on the undisputed facts Cain improperly terminated the sales agreement without giving the buyer written notice and an opportunity to cure.
I. BACKGROUND
A. Parties
Selwyn Cain is a resident of Boca Raton, Florida. He is the former President and sole shareholder of Avon Corrugated Corporation.
Steven Kramer is an attorney licensed to practice law in the Commonwealth of Massachusetts. He resides in Massachusetts and has a business address at 25 Walnut Street, Wellesley Hills.
B. The Terminated Business Transaction
In November of 1995, Cain and Avon executed Asset Purchase and Real Estate Agreements for the sale of Avon's business and real estate to BF Acquisition, Inc. and BF Avon Realty, Inc. (collectively, "BF"). The purchase price for the real estate was $2 million, and the purchase price for the assets was $2.65 million plus the book value of Avon's inventory. At the closing, Cain was to receive $300,000 plus the value of the inventory in cash, as well as a $2.35 million promissory note.
These two entities were formed by Bicknell Fuller Paper Box Co. ("BF") for the purpose of the sale. BF Acquisition, Inc. was to acquire the Avon business and BF Avon Realty, Inc. was to acquire the real estate.
Under the terms of the Asset Purchase Agreement, Cain and Avon were required to execute a subordination agreement "in substantially the form and substance" as the exhibit attached to the Agreement. The Agreement further provided for the execution of such other agreements and documents "as Buyer may request in order to confirm such subordination, provided the substance thereof is consistent with or comparable to, and no less favorable to Seller than, the terms of such Subordination Agreement."
Section 9.1 of the Asset Purchase Agreement set forth the conditions under which the Agreement could be terminated prior to the closing date. Under § 9.1B, unilateral termination by the Seller was permitted if the Article VII conditions were not complied with or performed in any material respect and "such noncompliance or nonperformance shall not have been cured or eliminated after notice thereof to Buyer and the lapse of a reasonable time within which to cure or eliminate the same (or if by its nature such noncompliance or nonperformance cannot be cured or eliminated) by Buyer at or before the Closing Date. . . ."
Section 9.2 required that any election to terminate the Agreement be in writing. Section 11.3 also required all notices to be made in writing and would be deemed given only if sent by certified or registered mail, return receipt requested.
The closing was originally scheduled for January 8, 1996. It was rescheduled by mutual agreement of the parties for January 29, 1996.
BF was not prepared to close on January 29th, in part because an environmental problem had not been resolved. According to Richard Langerman, BF's counsel, at some point during the week of January 22nd, he and David Yarosh, counsel for Cain, orally agreed to extend the closing into February if necessary. Yarosh, however, stated in his 1997 deposition that at no time prior to January 29th had Langerman requested a postponement of the January 29th closing.
On Friday, January 26, 1996, Langerman forwarded to Yarosh a memorandum and certain documents, including a revised subordination agreement, for Yarosh's review. The subordination agreement contained some relatively minor changes that were not in the original agreement (attached to the Asset Purchase Agreement as Exhibit 8.6), and deleted assignment language found in paragraph five of the original agreement.
On Saturday, January 27, 1996, Langerman faxed Yarosh several closing documents, including a more substantially revised subordination agreement. At trial, Langerman stated that he learned on Friday, January 26th, that the original subordination agreement was unacceptable to Citizens Bank. Citizens Bank was providing a letter of credit to BF to enable BF to secure financing for the transaction from the Massachusetts Industrial Finance Agency. The revised agreement again omitted the assignment language in paragraph five and added four new paragraphs to reflect Citizens Bank's additional requirements in connection with their issuance of the letter of credit.
Langerman did not recall any objections by the bank to the assignment language or any negotiations over deletion of that language. At trial, Langerman stated that if Yarosh had called the inadvertent deletion to his attention, he would have reinserted it. Judge Hinkle found that, because this omission was not done intentionally by Langerman and was not requested by Citizens Bank, it was merely accidental.
Langerman expressed his belief that Citizens Bank required these revisions as a condition of its approval of the transaction. In his cover memorandum, Langerman described the changes as "[a] few additions to the Subordination Agreement, which appear to clarify what's already there. . . . These revisions were requested by the bank's attorney, subject to his client's approval." On the evidence before her, Judge Hinkle found that the added paragraphs did not alter the substance of the original subordination agreement.
Yarosh reviewed the documents on Sunday morning, January 28th, and met with Cain to discuss them. Yarosh advised Cain not to sign the revised agreement, because the changes "affected his rights dramatically and negatively," citing as examples the absence of an assignment provision, the prohibition against marshaling, and the standstill provision. Cain stated at his 2001 deposition that Yarosh was "emphatic about even considering signing the subordination agreement the way it existed. He said he would not allow me to do it under any circumstances; that it was completely changed from what he agreed the original one was." Cain explained that, as he understood the additions, he would be "second in line to the bank" and it would be almost impossible for him to get back into the business if BF defaulted.
Yarosh explained that a prohibition against marshaling "would prevent the person to whom a debt was owed from going after the assets of the borrower and bringing the assets together to pay off the debt."
Yarosh stated that the standstill provision "prevented any action that Cain could commence against BF while BF still owed money to the bank, the first creditor."
Cain stated at his deposition that if the bank had removed the objectionable changes to the subordination agreement, he probably would have gone forward with the transaction.
In his 1997 deposition, however, Cain did not recall what language in the revised subordination agreement had been objectionable to him. He also acknowledged that he did not know the business purpose served by the subordination agreement.
As a result of this meeting, Cain instructed Yarosh on January 28th to tell Langerman that the deal was "dead," and cancelled their flights to Boston for the closing. Yarosh stated that Cain also instructed him "to do nothing further on this deal with BF at all."
At his 1997 deposition, Cain explicitly acknowledged that he decided to terminate the transaction on Sunday, January 28, 1996.
At his 1997 deposition, Cain acknowledged that he did not comply with the notice and cure requirements of § 9.1B. In response to questioning, he stated that the new subordination agreement was a breach of an obligation of the buyer, but did not purport to know what about the revised agreement constituted a breach. Nor did Cain purport to know if the revisions were required by the bank or if the revisions were negotiable.
On January 28th, Yarosh left voice mail messages for Langerman at his home, his Cape Cod home, and his office. When Yarosh spoke with Langerman, he informed Langerman that he had been instructed by Cain to tell him that the deal was "dead" and that they would not be attending the closing the next day. According to Yarosh, during this conversation, Langerman attempted to convince him that the subordination agreements were "identical in substance." Langerman stated that, during their January 28th phone conversation, Yarosh appeared to agree that the changes did not alter the substance of the subordination agreement, but explained that he might still have problems with Cain.
At his 2000 deposition, Yarosh stated that he spoke with Langerman on January 28th. At his 1997 deposition, however, Yarosh stated that he did not speak to Langerman on January 28th.
Langerman asserted that Yarosh in fact did not inform him that the deal was "dead" until several days after their January 28th phone conversation about the revisions. According to Langerman, he received a phone message from Yarosh to the effect that Cain wanted to terminate the agreement and to pick up his documents relating to the transaction.
On February 2, 1996, Langerman faxed Yarosh a memorandum expressing his understanding, from Yarosh's "most recent telephone messages," that Cain had terminated both Agreements. Langerman also conveyed his clients' belief that such termination "is not permitted by and is, therefore, wrongful under the respective Agreements."
On February 14, 1996, Cain met with Austin Smith, a real estate broker. According to Smith, Cain asked him to market the Avon real estate on a "quiet basis" to potential buyers for approximately $3.6 million. On August 1, 1997, Cain sold the Avon assets and real estate to Abbott Box for five million dollars plus $250,000 for goodwill and an agreement not to compete.
Cain stated in his deposition that he simply asked Smith to evaluate the real estate.
C. Underlying Litigation
On November 18, 1996, BF filed suit in Suffolk County Superior Court against Cain and Avon for breach of the purchase agreements. Cain retained Steven Kramer to represent him in the litigation.
The case was styled BF Acquisition, Inc. v. Avon Corrugated Corp, Suffolk Super. Ct. No. 96-6417-B. (Compl. ¶ 5.)
In the course of discovery, BF served a request for admissions on Cain and Avon on November 14, 1997. Kramer drafted substantive answers, admitting forty-five of the Requests and denying forty-seven of the Requests. Request Nos. 15-20, which were denied, stated that Cain made the decision to terminate the agreements on January 28, 1996, instructed Yarosh to communicate Cain's decision to Langerman orally, and instructed Yarosh to have no further communications with Langerman. Although Request No. 21, stating that written notice of the termination was never sent to BFA, was admitted, requests for admissions that neither Cain nor Avon advised BF of a contractual breach in writing or suggested a cure of any claimed breach prior to January 29, 1996 were both denied. Finally, Request No. 34, stating that the terms of the revised subordination agreement were, "in substance, the same terms as the terms of [the first] subordination agreement," was denied.
Kramer signed the defendants' answers to the request for admissions himself, instead of obtaining Cain's signature, in violation of Massachusetts Rule of Civil Procedure 36(a), which requires that any denial by the party to whom the request is directed must be signed by such party. Cain acknowledged having seen the answers and objections of Avon Corrugated to Plaintiff's First Request for Admissions, but did not recall discussing those answers with Kramer. Similarly, Yarosh stated that, during preparation for trial, he never discussed any requests for admission with Kramer. In contrast, Kramer asserted that he, Yarosh, and Cain "went over the particular questions that I needed to get information from them on that I did not have the information already."
Cain stated that he met with Kramer once to prepare for his deposition, but did not recall what occurred at that meeting.
On April 17, 1998, BF filed a motion for leave to file a partial summary judgment motion, in which it asserted that all of the requests be deemed admitted because defendants' counsel had signed the answers himself. Judge Hinkle denied the motion as untimely. According to Kramer, this was the first time he learned that BF was taking the position that, because the defendants' answers were not properly executed, the requests should be deemed admitted.
On July 1, 1998, Kramer moved to amend defendants' answers to include a signature by Cain, as opposed to counsel, for the substantive responses previously provided. Judge Hinkle denied this motion as untimely.
On July 22, 1998, Kramer filed a motion for reconsideration, and attached an affidavit from Cain indicating that the substantive responses to the plaintiffs' request for admissions were his responses. This motion was denied. Kramer then filed a petition for interlocutory relief with the Appeals Court, which was also denied.
Kramer did not inform Cain that the Superior Court refused to allow the amendment to substitute signatures.
On August 13, 1998, Judge Hinkle ruled that all requests except numbers 3 and 4 could be offered by plaintiffs at trial as admissions of the defendants. On August 17, 1998, Judge Hinkle denied what she characterized as the "continuing motion to withdraw admissions."
Cain asserts that Kramer not only failed to inform him about the admissions issue, but intentionally concealed the problem from Cain for some time. Cain stated that Kramer did not want him in court for the first two days of trial, and that he only attended part of the second day because he "got tired of staying in somebody's office to wait for a call to come to trial." Yarosh also stated that Kramer told him that he and Cain should not appear on one of the days, allegedly because there were "certain administrative things that had to be done." Yarosh did not follow Kramer's instructions, and when he arrived in court, an attorney from the office of BF's counsel was on the stand, reading what Yarosh later learned were responses to requests for admissions. Prior to observing this reading, Yarosh was not aware that there had been any admissions made by Cain.
Kramer stated that Cain was present on the first day of trial.
Yarosh testified that when he asked Kramer what was going on, Kramer him that he would explain later.
Kramer asserts that he first informed Cain of the potential adverse impact of the admissions issue on the first day of trial. Kramer explained that the issue of the admissions had come up several times during the first day of trial and he wanted to discuss the issue with Cain "because he had obviously been sitting there and was wondering what is going on with these admissions."
At the trial, Judge Hinkle permitted plaintiffs' counsel to read the following statements, among others, to the jury as admissions by Cain and Avon:
Cain, individually and as president of Avon, made the decision to terminate the Asset Purchase Agreement on January 28, 1996.
Cain, as president of Avon, made the decision to terminate the Real Estate Purchase Agreement on January 28, 1996.
Cain instructed Yarosh to orally communicate both Cain and Avon's intent to terminate the Asset Purchase Agreement to Langerman, as attorney for BFA, on January 28, 1996.
Cain instructed Yarosh to orally communicate Avon's intent to terminate the Real Estate Purchase Agreement to Langerman, as attorney for BFR, on January 29, 1996.
Cain instructed Yarosh not to communicate further with Langerman after communicating Avon and Cain's decision to terminate the Asset Purchase Agreement on January 28, 1996.
Cain instructed Yarosh not to communicate further with Langerman after communicating Avon's decision to terminate the Real Estate Agreement on January 28, 1996.
Neither Cain nor Avon ever advised BFA or BFR of a contractual breach of BFA in any writing nor did they suggest a cure of any claimed breach in writing related to the Asset Purchase Agreement prior to 5:00 p.m. on January 29, 1996.
Neither Cain nor Avon ever advised BFA or BFR of a contractual breach of BFR in any writing nor did they suggest a cure of any claimed breach in writing related to the Real Estate Purchase Agreement prior to 5:00 p.m. on January 29, 1996.
Neither Cain nor Avon were ready, willing and able to close under the Asset Purchase Agreement on January 29, 1996.
Avon was not ready, willing and able to close under the Real Estate Purchase Agreement on January 29, 1996.
Neither Cain nor Avon knew the purpose of the Subordination Agreement marked as Exhibit 8.6, incorporated by reference and attached to the Asset Purchase Agreement.
The Subordination Agreement terms faxed to Yarosh on January 27, 1996 were in substance the same terms as the terms of the Subordination Agreement attached to the Asset Purchase Agreement as Exhibit 8.6.
Judge Hinkle did not permit Kramer to introduce any evidence contradicting the deemed admissions. Because one of the requests for admissions stated that the terms of the subordination agreements were in substance the same, Judge Hinkle ruled that evidence suggesting that there were material differences between the agreements would contradict the admission and so was not admissible. Similarly, Judge Hinkle noted that Kramer would not be able to use his experts "to put on testimony which the Court has already ruled may not come in. . . ."
At various times during the course of the trial, Judge Hinkle purported to give defendants some latitude to put on evidence regarding the differences between the subordination agreements. Noting that defendants had a serious admission against them, she added "they can attempt to delineate the differences, that is appropriate." Judge Hinkle also stated that "if there has to be some explication of those differences that [doesn't mean that] there shouldn't be that explication in front of the jury from the perspective of justice." However, it is clear from the record that the impact of such evidence was effectively diminished as a result of the admissions.
At trial, Judge Hinkle prohibited both Yarosh and Cain from testifying about subject matters as to which the attorney-client privilege had previously been invoked at depositions, thereby foreclosing inquiry into such matters. Furthermore, Judge Hinkle ruled that, without this foundational testimony, defendants' experts, particularly Professor Lemelman, could not offer opinions on the subordination agreements. Judge Hinkle ruled that "there could not be inquiry made unless there had been prior to trial disclosure of that information," and noted that this ruling impacted, to some degree, "the evidence that the defendants might otherwise have put in."
On August 24, 1998, after a five day trial, the jury found for BF on its breach of contract claim but not on the implied covenant of good faith and fair dealing and interference with prospective business relationship claims. Damages in the sum of $750,000, plus accrued interest, were awarded to plaintiffs.
II. ANALYSIS
A. Summary Judgment Standard
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In evaluating the defendant's motion for summary judgment, I must view the facts in the light most favorable to the non-moving party, drawing all reasonable inferences in that party's favor. Villanueva v. Wellesley College, 930 F.2d 124, 127 (1st Cir. 1991). However, I am not required to credit "conclusory allegations, improbable inferences, and unsupported speculation." Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990).
B. Cain's Claims
Count I of the Complaint asserts a claim for legal malpractice grounded on negligence. (Compl. ¶¶ 23-24.) Count II sets forth a claim for legal malpractice arising out of breach of contract. Cain contends that he and Kramer entered into a contract for the provision of legal services in defense of the BF suit, and that Kramer's failure to provide proper legal advice and services to Cain constituted a material breach of his contractual obligations. (Compl. ¶¶ 26-27.) Count III of the Complaint also appears to arise out of an implied contract between the parties. It asserts that Kramer, by failing to act fairly and in good faith as Cain's attorney, breached the implied covenant of good faith and fair dealing contained in his contract with Cain. (Compl. ¶ 30.)
A breach of contract claim against an attorney based on a retainer agreement may be sustained only where the attorney makes an express promise in the agreement to obtain a specific result and fails to do so. See Pacesetter Communications Corp. v. Solin Breindel, P.C., 150 A.D.2d 232, 236 (1989). A breach of an implied contract by the attorney to use his legal training, skills and experience, however, is "nothing more than a restatement of the negligence cause of action. . . ." Harris v. Magri, 39 Mass. App. Ct. 349, 352-53 (1995) (quoting Colucci, 25 Mass. App. Ct. at 111); see also Mallen Smith, 1 Legal Malpractice § 8.7 (5th ed. 2000) (in breach of implied contract claim, client may not be allowed remedy other than for negligence where that is the only alleged wrong). Because Cain's claim falls into the latter category, Counts I, II, and III will be considered together as a negligence cause of action for legal malpractice.
Count IV sets forth a claim for breach of fiduciary duty by Kramer. The fiduciary obligations owed by an attorney to a client are (1) confidentiality; and (2) undivided loyalty. Mallen Smith, 2 Legal Malpractice § 14.2. An attorney's negligence, without more, does not implicate a breach of fiduciary obligations and so does not support a cause of action for fiduciary breach. Id. I do not find a theory of fiduciary breach implicated in this case.
C. Cain's Procedural Objections
1. Admissibility of Materials
Cain objects to the inclusion of certain "inadmissible materials" in Kramer's Appendix in support of his motion for summary judgment. First, Cain contends that Tab 6, a copy of portions of Cain's 1997 deposition, and Tab 14, a copy of Judge Hinkle's Findings of Fact, Conclusions of Law and Order for Judgment on Plaintiffs' Chapter 93A Claim, are not from the present litigation and are not authenticated, and so should not be considered in this summary judgment proceeding. This defect has been cured by Kramer's subsequent submission of a Supplemental Affidavit authenticating the documents found at Tabs 6 and 14.
Kramer next objects to the inclusion of Tabs 5 and 7, copies of memoranda dated January 27 and February 2, 1996 from Richard Langerman to David Yarosh, and Tab 19, a copy of defense expert Joseph Vrabel's Expert Witness Report. Cain asserts that these documents contain out-of-court statements by non-parties offered for the truth of the matters asserted, and so should not be considered in this summary judgment proceeding. I find that Langerman's memoranda to Yarosh were offered, not to prove the truth of the matter asserted, but to aid in establishing a chronology of events; as such, they are not hearsay and are admissible. The Vrabel Expert Witness Report at Tab 19 is admissible under Rule 702, which permits testimony by experts.
Finally, Cain objects to portions of Langerman's 2000 deposition — page 24, line 18 to page 25, line 20 — included at Tab 4 of Kramer's Appendix, in which Langerman explains what Mr. Zinnershine at Citizens Bank conveyed to him about Citizens Bank's requirements for the subordination agreement language. Cain argues that this material involves hearsay and leading questions, and accordingly should be excluded. I find that these statements were not offered to prove the truth of the matter asserted, but rather to explain Langerman's understanding as to whether the revisions were absolute requirements to the closing occurring. Accordingly, the challenged portion of Langerman's deposition is admissible.
2. Need for Expert Testimony
Cain next contends that Kramer's causation argument — i.e., that his negligence was not causally related to the jury verdict — is "outside the pale of lay witness testimony and requires an expert, which Mr. Kramer does not offer in his Motion for any substantive reason." Cain adds that even if Kramer's opinion about the effect of the revised subordination agreement was admissible without expert support or qualified as expert testimony, "a disagreement between experts on an issue requiring expert testimony is a classic example of a material factual dispute which, under Rule 56, necessitates the denial of summary judgment."
Expert testimony, in some circumstances, is necessary to prove the element of causation in a legal malpractice claim. Atlas Tack Corp. v. Donabed, 47 Mass. App. Ct. 221, 226 (1999) (citing Colucci v. Rosen, Goldberg, Slavet, Levenson Wekstein, P.C., 25 Mass. App. Ct. 107, 115 (1987); DiPiero v. Goodman, 14 Mass. App. Ct. 929, 929-30 (1982), cert. denied, 460 U.S. 1029 (1983)). But see Mallen Smith, 5 Legal Malpractice § 33.17 at 140 (courts have been reluctant to admit expert testimony on causation). The Massachusetts Appeals Court in Atlas Tack Corp. rejected the plaintiff's argument that the expert testimony of an attorney was sufficient to establish the element of causation and proof of damages, explaining that, while an attorney's testimony may be sufficient to prove damages caused by another attorney's negligence in settling a tort claim arising out of a motor vehicle accident, "such cases generally do not require expert testimony on the issue of causation because the subject is usually within the ken of the ordinary juror." Atlas Tack Corp., 47 Mass. App. Ct. at 622 (citing Fishman v. Brooks, 396 Mass. at 647). In contrast, the court noted that the plaintiff in Atlas Tack could not show causation without expert engineering testimony because the case involved "a subject beyond the knowledge and experience of the average jury, and the qualifications of an attorney offering to educate such a jury." Id. See also Colucci, 25 Mass. App. Ct. at 115-16 (expert testimony as to causation was required to show that, absent negligence, attorney would have succeeded in obtaining a temporary restraining order in underlying action).
I find that the issue of causation in the present action is within the capacity of an ordinary jury, and thus Kramer is not required to proffer expert testimony in support of his position that his negligence was not the proximate cause of Cain's losses.
I note that Kramer does in fact provide a pertinent Expert Witness Report, in which Joseph Vrabel opines that the differences between the Subordination Agreements are not material and that "an average qualified practitioner would have advised his client that the termination provisions of the Asset Purchase Agreement controlled any attempt by the client to terminate the underlying transaction." I note also that the Massachusetts cases typically concern situations where the former plaintiff in the underlying action is suing his former attorney for legal malpractice. In those cases, the plaintiff in the malpractice action bears the burden of proving proximate cause and the defendant attorney is not required to offer expert testimony negating causation. The question of which party bears the burden of proof in those circumstances in which the current plaintiff in the malpractice action was the defendant in the underlying litigation is discussed below.
Moreover, as Kramer notes in his Memorandum in Support of his Motion for Summary Judgment, Cain's two expert reports opine (1) that the changes to the Subordination Agreement were material; and (2) that Kramer was negligent in signing the admissions and failing to waive the attorney-client privilege between Cain and Yarosh. Neither report discusses Cain's failure to give BF written notice or an opportunity to cure before unilaterally terminating the transaction.
D. Legal Malpractice
1. General Legal Framework
Because this claim has been brought under this court's diversity jurisdiction, Massachusetts law regarding legal malpractice applies. See Wehringer v. Powers Hall, P.C., 874 F. Supp. 425, 427 (D.Mass. 1995) (citing Erie v. Tompkins, 304 U.S. 64 (1938)). When asserting a claim for legal malpractice, a plaintiff generally bears the burden of proving (1) the existence of an attorney-client relationship; (2) that its attorney breached his duty to exercise reasonable care and skill; (3) that the plaintiff suffered actual loss; and (4) that the attorney's negligence proximately caused such loss. See Atlas Truck Corp., 47 Mass. App. Ct. at 226 (citing Colucci, 25 Mass. App. Ct. at 111).
It is conceded for purposes of this motion that an attorney-client relationship existed between Kramer and Cain, that Kramer was negligent in the conduct of the underlying action, and that Cain suffered actual loss in the form of a damages award against him. Once negligence has been established, whether that negligence was the proximate cause of the plaintiff's loss is generally determined by conducting a "trial within a trial." Fishman v. Brooks, 396 Mass. at 647; see also Atlas Tack Corp., 47 Mass. App. Ct. at 226. However, the issue of proximate cause may be resolved as a matter of law at the summary judgment stage. Girardi v. Gabriel, 38 Mass. App. Ct. 553, 558-59 (1995) (citations omitted); see also Luis v. Walsh, 51 Mass. App. Ct. 1104, *1 (2001).
While the plaintiff — in order to show proximate cause — need not show with absolute certainty that he would have succeeded in the underlying action absent the attorney's negligence, he must demonstrate that "he probably would have obtained a better result had the attorney exercised adequate skill and care." Fishman, 396 Mass. at 647. See also Colucci, 25 Mass. App. Ct. at 113 (must show that "but for the attorney's failure, the client probably would have been successful in the prosecution of the [underlying] litigation"); Glidden, 12 Mass. App. Ct. at 600 ("Where a party who was the plaintiff in a legal action sues his attorney for negligence in the prosecution of that action, he must establish that he probably would have succeeded in the underlying litigation were it not for the attorney's negligence.").
2. Burden of Proof Where Attorney Represented Defendant in Underlying Action
Despite the general rule requiring a plaintiff in a legal malpractice action to prove every essential element of the cause of action, see Mallen Smith, 5 Legal Malpractice § 33.9 at 75, Cain contends that where he as plaintiff is suing his former attorney for negligently failing to defend the underlying civil action, the attorney defendant should bear the burden of proving that his negligence was not the proximate cause of his former client's loss.
It is well-settled that, where the former plaintiff in the underlying legal action sues his former attorney, he must establish likelihood of success in the underlying litigation were it not for the attorney's negligence. Glidden v. Terranova, 12 Mass. App. Ct. 597, 600 (1981). However, the question of which party bears the burden of proving proximate cause is much less clear where a former defendant sues his former attorney. See id. (noting lack of any Massachusetts cases "which answer the question of where the burden of proof lies in a malpractice action when the defendant-attorney allegedly failed to defend in the underlying litigation."); see also Mallen Smith, 5 Legal Malpractice § 33.9 at 80-82 (appropriate area for shifting burden of proof to defendant attorney is where lawyer's negligence has affected availability of evidence for former client to meet the burden of proof). The Glidden court ultimately held that the "attorney should indeed bear the burden of [proving that the client had no defense] in such a case, for `since the client had no obligation "to prove his case" in the underlying action (he could have simply required the plaintiff to prove his case), he should not shoulder the burden of proving a defense in the malpractice action.'" Glidden, 12 Mass. App. Ct. at 600 (citing Barry, Legal Malpractice in Massachusetts, 63 Mass.L.Rev. 15 at 17 n. 31 ("to require the client to prove that the underlying action was defensible requires him to establish in the malpractice suit that which he would not have been required to prove in the underlying action")).
The Supreme Judicial Court has acknowledged the Glidden holding with apparent approval. In Jernigan v. Giad, 398 Mass. 721 (1986), while reiterating the general rule that the plaintiff has the burden of proving proximate cause, id. at 723, the court noted: "We would accept the concept that an attorney defending a malpractice action may not rely on the consequences of his own negligence to bar recovery against him. The problem here is that there was no evidence to warrant the conclusion that the attorney's negligence made proof of collectibility impossible or more difficult." Jernigan, 398 Mass. at 723. Subsequently, in Deerfield Plastics Co., Inc. v. Hartford Ins. Co., 404 Mass. 484 (1989) (insurance claim wherein defendant argued by analogy to legal malpractice actions regarding the burden of proof), the court expressed approval of the Glidden holding, agreeing with the plaintiff that the burden of proving probable success in the underlying action may not be placed on the defendant in the underlying action. Id. at 486 n. 3 (stating, "The Appeals Court rightly so held in Glidden. . . .").
The SJC has also held that, where a malpractice action is brought against former counsel for the defendant, the defendant attorney can prevail "by proving by a preponderance of the evidence that, even though he may have been negligent, the plaintiff, his former client, would have lost the underlying case anyway." Glenn v. Aiken, 409 Mass. 699, 706 (1991) (citing Glidden, 12 Mass. App. Ct. at 600; Deerfield Plastics Co., 404 Mass. 484 n. 3)). The Glenn court further explained: "The factual issues once involved in the underlying action are presented to the trier of fact in the malpractice case with the burden of proof placed precisely as it was in the underlying action itself, counsel for the defendant attorney presenting the case formerly presented by the plaintiff in the underlying action." Id.
The First Circuit, while expressly declining to decide which party bears the burden of proof with respect to causation, has taken notice of the Glidden holding. In Wagenmann v. Adams, 829 F.2d 196 (1st Cir. 1987), the court noted "indications in the case law that, in a legal malpractice action brought because of a failure to defend against state proceedings, the defendant-attorney bears the burden of proving that, despite his negligence, the same outcome would have eventuated." Id. at 221 n. 17 (citing Glidden, 12 Mass. App. Ct. at 600).
In light of this case law, I find Kramer bears the burden of proving that, in the absence of any negligence on his part, Cain nevertheless would have been found liable for breach of contract in the underlying litigation. Before turning to the question of causation, it will be useful to understand the nature of the negligence alleged more precisely.
3. Negligence
Cain's negligence claim against Kramer essentially turns on two issues (a) mishandling of the admissions, and (b) mishandling of the client-attorney privilege problem.
Under Massachusetts law, an attorney owes his client a duty to exercise the skill and care of the average qualified practitioner. Fishman, 396 Mass. at 646. See also Clark v. Rowe, 428 Mass. 339, 341 (1998) (standard of care normally applied in legal malpractice action is whether the lawyer failed to exercise reasonable care and skill in handling the client's matter). The average qualified practitioner is required to know the procedural rules, substantive laws and statutes that govern the initiation and litigation of actions. See Mellen Smith, 4 Legal Malpractice § 30.8 (5th ed. 2000).
Kramer clearly deviated from the standard of care of the average qualified attorney practicing in Massachusetts by virtue of his ignorance of the requirements of Rule 36 of the Rules of Civil Procedure. Rule 36 specifically requires that all denials to a request for admissions be signed by the party under oath. The signature of the party's attorney will not suffice. Failure to comply with the requirements of Rule 36 may result in the matter being deemed admitted, as occurred in this case. Kramer was also negligent for failing to act promptly to remedy the situation upon learning of his error. Kramer acknowledged that he learned of the admissions issue on April 17, 1998, when BF filed its motion for leave to file for partial summary judgment. However, Kramer waited until July 1, 1998 — a delay of two and a half months — before filing a motion to amend the responses so as to substitute his client's signature, resulting in a denial of the motion as untimely.
The facts concerning Kramer's failure to have Cain waive the attorney-client privilege with respect to his conversations with Yarosh are more complicated. In his affidavit, Kramer states that he informed Yarosh at Yarosh's deposition that the attorney-client privilege between Cain and Yarosh relating to the underlying transaction had been waived. However, during the course of the deposition, David Neitlich, Yarosh's counsel, instructed Yarosh not to answer certain questions relating to his conversations with Cain about the subordination agreement, based on attorney-client privilege. Yarosh followed Neitlich's instructions and refused to answer those questions. (Id.) For example, Yarosh, at his counsel's instruction, declined to answer questions inquiring if he and Cain discussed the termination clause of the Asset Purchase Agreement; if he advised Cain not to comply with the cure provision; if Cain informed Yarosh that the deal was dead; and if Cain told Yarosh to give BF an opportunity to cure any defects.
Yet Kramer stated in his deposition that prior to the Yarosh deposition, he never spoke with Cain about waiving the attorney-client privilege with respect to Yarosh.
Approximately a week before the Yarosh deposition, Kramer met with both Yarosh and Neitlich to discuss issues relating to the attorney-client privilege. Kramer did not recall whether he took a particular position with Yarosh and Neitlich regarding the attorney-client privilege. According to Kramer, because of the relationship between Cain and Yarosh, "the degree to which I could suggest what should or shouldn't happen with respect to the relationship they had wasn't — it wasn't all my call." Kramer further noted that he was unable to impose his view — that the waiver should not be invoked with respect to discussions between Cain and Yarosh about the subordination agreements — upon either Yarosh or Neitlich, "who was very inflexible [in] the way that he dealt with this situation." Upon leaving the meeting, Kramer had the impression that "Neitlich was going to do what he wanted to do and what he felt was best for Mr. Yarosh at that point regardless of what anybody else said."
Kramer's failure to instruct Cain to waive the attorney-client privilege effectively prevented both Cain and Yarosh from testifying at depositions to their conversations with each other, their concerns regarding the new subordination language, and their reasons for deciding not to close on January 29, 1998. Regardless of Neitlich's position on the waiver of the privilege, the privilege to prevent disclosure of confidential communications between attorney and client belongs only to the client, and therefore can be waived only by the client. See Matter of John Doe Grand Jury Investigation, 408 Mass. 480, 483 (1990). Thus, reading the facts in the light most favorable to the plaintiff, as I must on a motion for summary judgment, I find that Kramer was negligent in failing to instruct Cain of the importance of waiving the privilege.
4. Causation
a. Collateral Estoppel
Before I turn to whether Kramer has shown that his negligence was not the proximate cause of Cain's loss, I must first address Kramer's argument that Cain is barred from arguing that the changes to the subordination agreement were material by the doctrine of collateral estoppel. Kramer contends that Judge Hinkle's finding that the revisions did not alter the substance of the original agreement binds Cain in this case.
In order for Kramer to successfully invoke the doctrine of issue preclusion, he must show that (1) there was a final judgment on the merits in the prior adjudication; (2) the party against whom preclusion is asserted was a party to the prior adjudication; (3) the issue in the prior adjudication was identical to the issue in the current adjudication; and (4) the issue was essential to the judgment. Tuper v. North Adams Ambulance Service, Inc., 428 Mass. 132, 134-35 (1998); Comm'r of the Dept. of Employment Training v. Dugan, 428 Mass. 138, 142 (1998); see also Jarosz v. Palmer, 49 Mass. App. Ct. 834, 836 (2000); TLT Construction Corp. v. A. Anthony Tappe Associates, Inc., 48 Mass. App. Ct. 1, 5 (1999); Restatement (Second) of Judgments § 27 (1982).
To ensure "fairness," i.e. that assertion of collateral estoppel does not work an injustice, the doctrine precludes relitigation only of those issues actually litigated in the prior action. TLT Construction Corp. 48 Mass. App. Ct. at 5 (citing Fidelity Mgmt. Research Co. v. Ostrander, 40 Mass. App. Ct. 195, 1999 (1996)). Put another way, a person who was not a party to the first action may use collateral estoppel defensively against a party who had a full and fair opportunity to litigate the issue in the first action. Martin v. Ring, 401 Mass. 59, 61 (1987) (citations omitted).
Cain contends that, due to Kramer's negligence, the issue of the materiality of the changes to the subordination agreement was not "actually litigated" in the underlying action. The record demonstrates that Cain's ability to present evidence in his defense in the prior adjudication was significantly curtailed by Kramer's negligence. First, Judge Hinkle ruled that no evidence in conflict with the admissions would be admitted. Because Request No. 34 stated that the terms of the revised subordination agreement "were, in substance, the same terms" as the original agreement, Judge Hinkle ruled that evidence suggesting that there were substantive differences between the agreements would contradict the admission and so would not be admissible. Second, Judge Hinkle ruled: "To the extent that there has been a claim of attorney-client privilege or work product which barred discovery in those issues, [Kramer] will be foreclosed from interrogating with respect to those issues."
Because Cain did not have a full and fair opportunity to litigate the issue of the materiality of the changes to the subordination agreement in the first trial, I find that Judge Hinkle's determination on this matter does not have preclusive effect.
In their treatise on legal malpractice, Mallen and Smith state: "Another inappropriate situation for collateral estoppel is if the client's prior position was induced by the negligence of the attorney, and the attorney's conduct was not adjudicated." Mallen Smith, 3 Legal Malpractice § 21.14 at 279 (in context of client challenging a settlement). They further note that where the error is not attributable to the attorney, "the prevailing view is that the client may not collaterally attack the judgment and, therefore, is estopped from relitigating the concluded issue in a legal malpractice action." Id. (citations omitted).
b. Absent Kramer's Negligence, Did Cain Have a Defense?
As discussed above, because Cain was the defendant in the underlying litigation, the normal burden of proof in a legal malpractice action is reversed. Rather than Cain bearing the burden of showing proximate cause, Kramer must establish that absent his negligence, Cain nevertheless would have been found liable for breach of contract because he had no valid defense. See Mellen Smith, 4 Legal Malpractice § 30.22 (attorney may be entitled to summary judgment on the grounds that there was no defense).
Whether the revisions to the subordination agreement were material was one of the primary issues in the litigation. The plaintiffs contended that there was no substantive or material change, bolstered significantly by the defendants' enforced admission that the agreements contained "in substance the same terms" as well as by Judge Hinkle's ruling that any evidence contradicting the admissions was inadmissible. Because the plaintiffs' requests for admissions were deemed admitted, the defendants were substantially limited in their efforts to show that the revisions were material and that BF had no right to compel Cain to submit to these changes.
Cain submits an expert report from Joseph Collins, who opines that the changes represented material alterations of the original subordination agreement, were materially less favorable to Avon than the original terms, and were not substantially in the form of the original agreement. For the purposes of this summary judgment motion, I will assume that, absent Kramer's negligence, the defendants could have established at trial that the revisions were material alterations to the terms of the original subordination agreement.
Cain argues that he and Yarosh did not believe the revisions were negotiable, due largely to Langerman's assertion that the changes stemmed from certain requirements imposed by Citizens Bank. In support, Cain refers to Langerman's January 27, 1996 cover memorandum, which states, "[o]ur bank financing includes certain requirements of Avon and Selwyn," and refers to "the bank's requirements." Moreover, Yarosh stated that at no time during their January 28th conversation did Langerman indicate a willingness to reconsider any of the changes that Yarosh had indicated were objectionable. On the contrary, Yarosh stated that Langerman informed him that the bank's attorney had decided that these provisions had to be included in the agreement. Finally, Langerman stated in his deposition that the changes in the subordination agreement had been requested by the bank, and that he assumed that the changes were mandatory.
Kramer argues that, even assuming the proposed revisions to the Subordination Agreement were material and provided grounds for terminating the deal, they did not excuse Cain's failure to comply with the written notice and termination provisions of the Asset Purchase Agreement. Under the explicit terms of the Agreement, the seller must provide the buyer with written notice and an opportunity to cure the noncompliance before termination of the Agreement.
During the trial, Langerman stated that BF could have terminated discussions with Citizens Bank, completed the Cain transaction based upon the original subordination agreement, and then raised the necessary financing after the deal had closed, necessitating no changes in the agreement. According to BF officials Michael Seigel and Cynthia Brandt, BF could have loaned up to $3.75 million to BF Acquisition, Inc. on January 29, 1996 so as to pay Cain in cash and thereby eliminate the need for the subordination agreement entirely. Thus, if Cain had provided BF with written notice of what he deemed a breach, as required by the Agreement, BF would at a minimum have been able to undertake to cure the problem because they arguably did not need the Citizens Bank letter of credit in order to close the deal.
Although Yarosh stated that BF refused to commit any of their assets to the transaction, presumably this would not preclude the company from raising financing after the deal had closed, per the scenario described by Langerman.
At the charge conference, Judge Hinkle noted that the agreements clearly imposed an obligation to provide written notice in order to provide an opportunity for the buyer to cure. (Def. App. Ex. 12 at 21.) She observed that it was uncontroverted at trial that Cain never provided written notice or an opportunity to cure, and stated:
[F]rankly that is a fatal flaw in the case and in your theory. And we may have to deal with that post verdict because while I am — while I am with you in terms of the need to have provided certified or registered mail notice, it seems to me that the failure to provide written notice at all as a matter of law is much more serious.
(Def. App. Ex. 12 at 23.)
The defense propounded by Kramer during the charge conference on the notice issue was that
[U]nder paragraph 9.1 there was a requirement that notice be given with a reasonable opportunity to cure unless such — the breach that was included in the notice can't be cured before closing. Now the argument is the closing was scheduled for January 29th. There simply was no possible means by which written notice could have been provided either specifically under the terms of the paragraph in the contracts or any other way to get that to Mr. Langerman prior to the closing on Monday.
In his deposition, Robert Chmielinski opined that the impossibility defense was the best defense available to Cain in the underlying litigation. He explained that,
Chmielinski had suggested to Cain that he retain Kramer as counsel in the underlying action.
because the closing was set for first thing in the morning on Monday, there was no time to negotiate any changes to them, and therefore, because of that fact, the closing date and time could not be met and that the deal would terminate of its own accord. So, there would be no further obligation on Selwyn to go forward with it. That's how — that was the best picture that I could come up with from a defense standpoint.
Under this theory, Cain's failure to give notice was irrelevant because the closing was scheduled for Monday morning, there was no time for any negotiated changes or cure, and so the deal would terminate by its own terms at that point in time. However, Chmielinski acknowledged that he had found no case law in support of his argument that the deal terminated pursuant to its own terms. He explained that it was "more of a legal conclusion we'd asked to be made at trial" by the judge. Chmielinski acknowledged that he was only able to find cases that cut against the theory, holding that in the absence of a time-is-of-the-essence provision, a relatively insignificant delay of the closing date generally results in judicial relief to the party desiring to go through with the closing, i.e. BF. Chmielinski explained that he hoped to get around those cases because the time-is-of-the-essence clause found in the real estate purchase agreement applied equally to the asset purchase agreement because it was an integrated deal. I find the impossibility defense to be speculative and unsupported by case law.
Chmielinski also noted that "giving notice could've possibly have caused the deal to reopen because it might trigger a cure period."
As a general proposition
if a party who has the power of termination fails to give notice in the form and the time required by his reservation, it is ineffective as a termination.
Corbin, 6 Corbin on Contracts, § 1266 at p. 64 (1962). Section 9.1 of the Asset Purchase Agreement granted Cain the power to terminate the agreement before the closing date if BF did not satisfactorily meet Article VII conditions and failed to cure or eliminate such default after notice and a reasonable opportunity to cure. Sections 9.2 and 11.3 set forth technical requirements for notice. Because the agreement expressly stated that the purpose of the notice provision was to give the Buyer a chance to cure any default if possible, Cain's failure to comply with the written notice requirement constituted breach of that cure provision. See generally Milona Corp. v. Piece O'Pizza of America Corporation, 1 Mass. App. Ct. 839, 840 (1973).
Milona continues to be the leading case on the issue of notice and opportunity to cure in Massachusetts. The Supreme Judicial Court, the lower Massachusetts courts, and Judge Tauro of this court have cited it for the relevant principles. See Sentry Insurance v. John J. Sullivan Inc., 128 B.R. 7, 10 (Bankr. D. Mass. 1990); Seagram Distillers Co. v. Alcoholic Beverages Control Com., 401 Mass. 713, 722 (1988); see, e.g. Priestley v. Sharaf's, Inc., 4 Mass. App. Ct. 218, 222 (1976); Bavosi v. Harrington, 1995 Mass. App. Div. 57, 58 (1995). Courts have contrasted Milona with New England Structures, Inc. v. Ronald Loranger, 354 Mass. 62 (1968), in which the Supreme Judicial Court refused to interpret a notice provision as an opportunity to cure a default because the parties did not expressly reference cure in their contract. See, e.g., Priestley, 4 Mass. App. Ct. at 222 (comparing Milona to New England Structures). Milona, therefore, has been read to require that notice requirements be complied with strictly if the parties have expressly included them in an agreement as an opportunity to cure a default. See Sentry Insurance v. John J. Sullivan Inc., 128 B.R. 7, 10 (Bankr. D. Mass. 1990); Priestley, 4 Mass. App. Ct. at 222.
If Cain had given notice as required by the agreement, BF could have undertaken to cure by financing the deal with cash and sought additional financing after the closing. Cain's determination that the deal was dead prevented BF from trying. Thus, based on the evidence before me, Cain has no valid defense sufficient to justify his failure to provide written notice and an opportunity to cure. Even if Kramer had not been negligent and had successfully established the materiality of the revisions to the subordination agreement, Cain would have been found liable for breach of contract as a result of his failure to afford "a reasonable time within which to cure . . ." as provided in § 9.1B of the Asset Purchase Agreement. Accordingly, Kramer has met his burden of proving that any negligence by him was not the cause of Cain's loss in the underlying litigation.
III. CONCLUSION
For the reasons set forth more fully above, I hereby GRANT defendant's motion for summary judgment.