Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-01705/USCOURTS-ca8-04-01705-0/pdf.json

Nature of Suit Code: 380
Nature of Suit: Other Personal Property Damage
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 04-1579

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Patrick T. Manion, Jr., *

*

 Appellant, *

*

v. *

*

Stephen E. Nagin; Herzfeld & Rubin; *

Herzfeld & Rubin, P.C.; *

Nagin Gallop Figueredo, P.A., *

*

 Appellees, *

*

Boat Dealers’ Alliance, Inc., *

*

 Defendant. *

Appeals from the United States

District Court for the

District of Minnesota.

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No. 04-1705

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Patrick T. Manion, Jr., *

*

 Plaintiff, *

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*

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Manion’s companion suit against BDA and its members is also the subject of

an appeal. We have issued a separate decision in that case. See Manion v. Nagin,

Nos. 03-2869 & 03-2870 (8th Cir. Dec. 16, 2004).

2

The Honorable Ann D. Montgomery, United States District Judge for the

District of Minnesota.

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Stephen E. Nagin; Herzfeld & Rubin; *

Herzfeld & Rubin, P.C.; *

Nagin Gallop Figueredo, P.A., *

*

 Defendants - Appellees, *

*

 v. *

*

Boat Dealers’ Alliance, Inc., *

*

 Defendant - Appellant. *

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Submitted: October 18, 2004

Filed: January 13, 2005

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Before MURPHY, HEANEY, and BEAM, Circuit Judges.

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HEANEY, Circuit Judge.

Patrick T. Manion, Jr., sued attorney Stephen E. Nagin, and the law firms of

Herzfeld & Rubin, Herzfeld & Rubin, P.C., and Nagin Gallop Figueredo, P.A., for

breach of fiduciary duty, negligence, and tortious interference with contract stemming

from Nagin’s conduct in the creation and representation of the Boat Dealers’

Alliance, Inc. (BDA).1

 The district court2 dismissed Manion’s suit, and we affirm.

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The district court properly considered the motion as one to dismiss rather than

one for summary judgment because the only matters beyond the pleadings relied upon

by the district court were matters of public record. Accord Porous Media Corp. v.

Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (noting that district court may

consider public records from other proceedings in ruling on a motion to dismiss).

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BACKGROUND

Because this matter reaches us following a motion to dismiss the complaint, we

construe the pleadings liberally in favor of Manion and accept the allegations in his

complaint as true. Wisdom v. First Midwest Bank, 167 F.3d 402, 406 (8th Cir.

1999).3

 Patrick Manion worked for many years in the pleasure boat industry. In

1995, he came up with a plan to organize, own, and operate an entity made up of

retail boat dealers, who would use their buying power to purchase marine equipment

at significant discounts.

Stephen Nagin held himself out as an attorney who was experienced in

representing buying groups. When Manion contacted Nagin about Manion’s idea to

create his marine buying group, Nagin boasted that he was a “world class lawyer”

working at a “world class law firm.” (Appellant’s App. at 32.) He claimed to be one

of the few lawyers in the country who had expertise in organizing buying groups. In

the spring of 1995, Nagin agreed to represent Manion in creating and running BDA.

Nagin told Manion that he would charge $300 per hour for his work on BDA, but

eventually the two agreed that Nagin would charge $150 an hour but also receive ten

percent of BDA’s preferred stock. Owners of the preferred stock received ten percent

of BDA’s annual distributable income. Until Nagin suggested he take an ownership

interest in BDA’s preferred stock, Manion intended to be the sole owner of it.

Nagin incorporated BDA in Florida. Manion questioned whether it was wise

to incorporate in this venue, but Nagin shrugged off Manion’s concern, stating “I am

the attorney. I am the one who is well versed in this. Let me do my job and you do

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yours.” (Appellant’s App. at 34.) When Nagin prepared BDA’s By-Laws, Manion

noticed that preferred stock shareholders could only vote for certain changes in the

By-Laws, while common stock shareholders had unrestricted voting rights. He

questioned Nagin about how he, owning only preferred stock, could control BDA if

he could not vote on general matters. Nagin advised Manion that he maintained

control over BDA because the value of his preferred stock was so much greater than

the value of common stock, and because of a Management Agreement that Nagin had

drafted to serve as Manion’s employment contract with BDA. Nagin assured Manion

that the Management Agreement precluded BDA from removing Manion from his

position as executive director for any reason for twenty years.

By 1996, Nagin had become unhappy with his fee structure. He wrote to

Manion, asserting that he was not receiving the amount of compensation they had

anticipated in crafting the fee agreement. The two agreed on a new fee structure,

whereby Nagin received a greater percentage of the preferred stock dividends.

Manion was the only other shareholder of the preferred stock, meaning that the

increased legal fees would be paid from monies originally due to Manion.

On February 13, 1999, BDA held a special meeting at which BDA terminated

Manion. In arbitration proceedings related to Manion’s claims of wrongful

termination, BDA successfully argued that its termination of Manion was proper

because he acted in bad faith against the interests of BDA. The district court

confirmed the arbitration award, and this court affirmed. See Manion v. Nagin, Nos.

03-2869 & 03-2870 (8th Cir. Dec. 16, 2004). Manion, still a majority shareholder of

the preferred stock, decided to attend BDA’s April 10, 1999 meeting. At the meeting,

Manion learned that Nagin had asked BDA’s Finance Committee to search for

additional grounds to justify BDA’s termination of Manion. When Manion learned

about this, he asked Nagin who he was representing. Nagin responded that he

represented BDA. Up until this point, Nagin had not told Manion that he did not

represent Manion, and Manion considered Nagin to be his lawyer.

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There is a question as to whether Minnesota or Florida law governs Manion’s

claims. We have included citations to both, as the result is the same under either

state’s law. 

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Manion filed suit against BDA, its individual members, Nagin, and his law

firms. The district court directed arbitration with regard to Manion’s complaint

against BDA and its members pursuant to the terms of his contract, and stayed his

claims against Nagin and the law firms pending the outcome of the arbitration. This

court affirmed. Manion v. Nagin, 255 F.3d 535 (8th Cir. 2001). Following the

arbitrator’s decision, Nagin and the law firms moved to dismiss Manion’s complaint,

contending that the claims were either legally deficient, collaterally estopped, or

barred for failure to comply with a Minnesota statute concerning legal malpractice

claims. The district court dismissed Manion’s complaint, and this appeal followed.

ANALYSIS

The district court found that Manion’s tortious interference with contract claim

and some of his negligence claims were barred by the doctrine of collateral estoppel,

also known as issue preclusion. “We look to state law in determining whether to

apply issue preclusion,” Liberty Mut. Ins. Co. v. FAG Bearings Co., 335 F.3d 752,

758 (8th Cir. 2003), and review the district court’s ruling on the matter de novo, Nat’l

Union Fire Ins. Co. v. Terra Indus., Inc., 346 F.3d 1160, 1164 (8th Cir. 2003). A

party is precluded from litigating an issue if the following conditions are met: 1) the

issue to be litigated is identical to one already decided in a prior adjudication; 2) the

earlier case resulted in a final judgment on the merits; 3) the party raising the issue

was a party to or in privity with a party to the prior case; and 4) the party was given

a full and fair opportunity to be heard on the issue. Crumley v. City of St. Paul, 324

F.3d 1003, 1006 (8th Cir. 2003) (stating Minnesota legal standard for the doctrine of

collateral estoppel); Cmty. Bank of Homestead v. Torcise, 162 F.3d 1084, 1086-87

& n.7 (11th Cir. 1998) (recognizing similar elements under Florida substantive law).4

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Manion first argues that the district court erred by relying on findings in his

related arbitration proceeding against BDA and its members when deciding if any of

his claims were collaterally estopped against Nagin and the law firms. We disagree.

An arbitration award counts as a final judgment for collateral estoppel purposes.

Wellons, Inc. v. T.E. Ibberson Co., 869 F.2d 1166, 1168-69 (8th Cir. 1989). While

Manion complains that he did not get a full and fair hearing in the arbitration, we

have considered this argument at length in the related appeal of Manion v. Nagin,

Nos. 03-2869 & 03-2870 (8th Cir. Dec. 16, 2004), and rejected Manion’s position.

Manion’s tortious interference with contract claim stems from his allegation

that Nagin interfered with his employment rights under his Management Agreement.

In order to prove tortious interference, Manion is required to show that he had valid

contract rights which Nagin knew about and procured another party to breach without

justification, and that he was damaged by the breach. Guercio v. Prod. Automation

Corp., 664 N.W.2d 379, 389 (Minn. Ct. App. 2003); accord Salit v. Rudin, McClosky,

Smith, Schuster, & Russell, P.A., 742 So. 2d 381, 385-86 (Fla. Dist. Ct. App. 1999)

(stating that under Florida law, a plaintiff alleging tortious interference must prove

the existence of a business relationship accompanied by legally enforceable rights,

the intentional and unjustified interference with that relationship, and damages).

Manion arbitrated the issue of whether BDA breached his Management Agreement

without justification. The arbitrator interpreted the contract to permit BDA to

terminate Manion if he was grossly negligent or acted in bad faith. Finding that

Manion demonstrated bad faith in three instances where he failed to act in BDA’s

financial interest, the arbitrator held that BDA was justified in terminating Manion’s

employment contract.

The arbitration decision precludes Manion’s tortious interference with contract

claim against Nagin and his firms. Manion alleged that Nagin assisted BDA in

breaching Manion’s contract. But, as the arbitrator found, BDA was justified in

terminating Manion’s contract because of his bad faith conduct. To sustain his claim,

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Manion must prove that Nagin assisted BDA in terminating him without justification,

Guercio, 664 N.W.2d at 389; Salit, 742 So. 2d at 385-86, and he cannot do so here

on account of the arbitrator’s contrary ruling.

The same analysis applies to the negligence claims dismissed by the district

court on collateral estoppel grounds. Manion alleged that Nagin was negligent in not

protecting Manion’s ownership rights to his preferred stock, and that he was damaged

by the loss of the stock. The arbitrator, however, found that Manion was still the

rightful owner of the preferred stock and entitled to all benefits attendant to

ownership. Since Manion’s claimed damages flowed from his alleged loss of the

stock, and the arbitrator found that Manion never in fact lost his stock, he has suffered

no injury. Proof of damages or a cognizable injury is essential to a negligence claim.

Lubbers v. Anderson, 539 N.W.2d 398, 401 (Minn. 1995); Fla. Power & Light Co.

v. Lively, 465 So. 2d 1270, 1273 (Fla. Dist. Ct. App. 1985). Manion cannot establish

the essential elements of negligence for his action concerning his preferred stock.

The district court dismissed the remainder of Manion’s suit, which alleged

negligence and the breach of fiduciary duty related to Nagin’s legal work, because it

found he failed to state a claim. The lynchpin of this holding was the district court’s

determination that Nagin was never working as Manion’s personal lawyer, and thus

owed Manion no duty whatsoever.

To maintain a claim for negligence deriving from legal malpractice, the

plaintiff must demonstrate the existence of an attorney-client relationship. Wartnick

v. Moss & Barnett, 490 N.W.2d 108, 112 (Minn. 1992); Horowitz v. Laske, 855 So.

2d 169, 173 (Fla. Dist. Ct. App. 2003). Similarly, an attorney undertaking an

attorney-client relationship assumes fiduciary duties, the breach of which may be

actionable. STAR Ctrs., Inc. v. Faegre & Benson, L.L.P., 644 N.W.2d 72, 77 (Minn.

2002); Behr v. Foreman, 824 So. 2d 222, 223-24 (Fla. Dist. Ct. App. 2002).

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In Minnesota, an attorney-client relationship can be created through contract

or tort theory. Gramling v. Mem’l Blood Ctrs., 601 N.W.2d 457, 459 (Minn. Ct. App.

1999). Under the former, the plaintiff must show the creation of the relationship

through either express or implied contract. Id. The tort theory of representation

recognizes the existence of an attorney-client relationship “whenever an individual

seeks and receives legal advice from an attorney in circumstances in which a

reasonable person would rely on such advice.” Id. at 460. Likewise, in Florida the

test for determining if an attorney-client relationship exists depends on the client’s

belief that he is consulting with an attorney for the manifest purpose of obtaining

legal advice. Fla. Bar v. Beach, 675 So. 2d 106, 109 (Fla. 1996). In both states,

though, an individual’s subjective expectation that a lawyer will represent the person

is insufficient as a matter of law to create the relationship. Id.; Gramling, 601 N.W.2d

at 460. 

The district court held that the complaint did not sufficiently show that Nagin

and Manion had established an attorney-client relationship. The court noted that

Nagin’s work was solely related to the creation and operation of BDA, and that Nagin

never worked on anything for Manion individually. Invoking the well-established

rule that a corporate employee does not generally enjoy an attorney-client relationship

with corporate counsel, the court dismissed the claims which required proof of that

relationship as an element.

Florida and Minnesota have both adopted rules of professional conduct which

govern the actions of their states’ lawyers. Both states have nearly identical rules

about the representation of corporations and similar entities, making clear that the

attorney’s duty attaches to the entity, not its constituents. Minn. R. Prof. Conduct

1.13(a); R. Regulating Fla. Bar 4-1.13. Cases interpreting these rules have adhered

to this proposition. See Humphrey v. McLaren, 402 N.W.2d 535, 540 (Minn. 1987)

(noting that in representing a corporation against one of its officers or employees,

corporate counsel’s “allegiance is to the organization”); Brennan v. Ruffner, 640 So.

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2d 143, 145-46 (Fla. Dist. Ct. App. 1994) (holding that generally an attorney

representing a closely held corporation “owes no separate duty of diligence and care

to an individual shareholder absent special circumstances or an agreement to also

represent the shareholder individually”). The district court also turned for guidance

to a Wisconsin Supreme Court case, Jesse v. Danforth, 485 N.W.2d 63 (Wisc. 1992).

Jesse involved a medical malpractice suit against a few named health care

professionals. Two of the doctors moved to disqualify the plaintiffs’ law firm

because the firm had helped those doctors to create a corporation for the purpose of

purchasing and operating MRI equipment. The corporation was not a party to the

Jesse suit. The question presented to the Wisconsin Supreme Court was whether the

plaintiffs’ law firm must be disqualified where one of its members represented the

defendant doctors in their formation of the MRI-related corporation. The court noted

that at the initial stages of the firm’s relationship with the doctors, it was representing

them personally because no corporation had yet been formed. Still, since the

representation was limited solely to the creation of the MRI corporation, the court

retroactively applied the entity rule to hold that the firm never actually represented

the doctors individually:

[W]here (1) a person retains a lawyer for the purpose of organizing an

entity and (2) the lawyer’s involvement with that person is directly

related to that incorporation and (3) such entity is eventually

incorporated, the entity rule applies retroactively such that the lawyer’s

pre-incorporation involvement with the person is deemed to be

representation of the entity, not the person.

Id. at 67.

Relying on Jesse, the district court invoked the entity rule to find that Nagin

exclusively represented BDA. We agree that if Nagin’s only interaction with Manion

was to create BDA, Nagin could not be considered Manion’s lawyer. Liberally

construing the complaint in Manion’s favor, though, we cannot agree that Nagin only

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The rules professional conduct of both Minnesota and Florida in fact

contemplate that corporate counsel may also act as the attorney for an officer or

employee of the corporation and generally permit such conduct. Minn. R. Prof.

Conduct 1.13(e); R. Regulating Fla. Bar 4-1.13(e).

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operated as BDA’s attorney. While Nagin may well have represented BDA as its

corporate counsel, this does not preclude a finding that Nagin also provided Manion

with legal advice and thus established an attorney-client relationship.5

 Manion alleged

that he sought and received guidance about how he could maintain control of the

corporation. Nagin’s advice here was not to BDA, but to Manion personally.

Similarly, Manion used Nagin to draft an employment agreement between himself

and BDA. Manion expressed his concern that the agreement sufficiently protect his

interests, and Nagin accordingly drafted the agreement in a manner that he told

Manion woud ensure a twenty-year term of employment. When Nagin renegotiated

his payment agreement, he and Manion agreed that Nagin would receive a portion of

Manion’s preferred share dividends. In other words, Nagin was paid for his services,

at least in part, out of Manion’s pocket.

When Manion asked questions about the incorporation documents and his

employment agreement, he was seeking an opinion about the legal interpretation of

the documents and whether they benefitted him as contemplated. These matters were

not directly related to the formation of BDA–they concerned Manion’s personal

concerns of how he would be employed, and whether he would have control of the

corporation. Cf. Jesse, 485 N.W.2d at 67 (“[W]here the person who retained the

lawyer provides information to the lawyer not directly related to the purpose of

organizing an entity, then it is the person, not the corporation, which holds the

privilege for that communication.”). Providing Manion with advice about his

personal interest in BDA and the Management Agreement was obviously beyond the

scope of Nagin’s job as BDA’s attorney, and perhaps contrary to it. If Nagin was

truly working exclusively as BDA’s lawyer, he should have responded to Manion’s

questions by clarifying that he worked only for BDA and suggested Manion seek

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outside counsel. See Minn. R. Prof. Conduct 1.13(d) (requiring corporate counsel

who is dealing with a shareholder or employee to “explain the identity of the client

when it appears that the organization’s interests are adverse to those of the

constituents with whom the lawyer is dealing”); R. Regulating Fla. Bar 4-1.13(d)

(same). Instead, Nagin advised Manion that he maintained control over BDA by

having a strong financial interest in the preferred stock shares and by holding a

twenty-year employment contract. Manion sought and received legal advice on these

matters from Nagin, and that is sufficient to establish that an attorney-client

relationship existed between the two of them. Gramling, 601 N.W.2d at 460; Beach,

675 So. 2d at 109.

 Nonetheless, Manion has not stated a cognizable claim related to his attorneyclient relationship with Nagin. Manion has sufficiently alleged that he established

an attorney-client relationship with Nagin relating to Manion’s employment contract

and control of the corporation. But the arbitrator in Manion’s related action against

BDA found that Manion operated in bad faith against the corporation’s interests by

overpaying himself and other BDA shareholders and by failing to disclose financial

data which would have revealed his bad faith. Bound by that finding, the defect in

Manion’s claims becomes obvious: he asks us to hold that Nagin committed legal

malpractice by not warning him that he may lose control of BDA for committing

malfeasance toward it, or protecting Manion from termination once Manion operated

in that manner. Such a claim is not viable under either Minnesota or Florida law.

Accord Minn. R. Prof. Conduct 1.2(c) (forbidding an attorney from assisting a client

in fraudulent or deceitful conduct); R. Regulating Fla. Bar 4-1.2(d) (same).

Accordingly, we affirm the district court’s dismissal of Manion’s breach of fiduciary

duty and negligence claims as they related to Nagin’s legal work. See Tademe v.

Saint Cloud State Univ., 328 F.3d 982, 990 (8th Cir. 2003) (noting that this court may

affirm the district court’s grant of summary judgment on any basis supported by the

record).

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CONCLUSION

We affirm the district court, and deny the appellees’ motion to supplement the

record.

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