Opinion ID: 1852412
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Heading Rank: 4

Heading: Renewed Consortium-STAR Financing Agreement

Text: On January 24, 1996, Consortium sent to STAR a revised formal commitment agreement. STAR asked Faegre to represent it in connection with its new financing project. On February 26, 1996, the firm sent a letter to STAR to confirm the terms of its representation. STAR and Consortium scheduled the closing for June 28, 1996, and STAR met all conditions to close on that date. On June 19, 1996, Consortium sent a letter to STAR that terminated the loan agreement. Faegre declined STAR's request to represent STAR in an action against Consortium and referred STAR to another law firm. In August 1996, the Federal Bureau of Investigation (FBI) filed a criminal complaint against Arthur Schuyler Ross, also known as John Ross, who was Consortium's chief executive officer. The complaint alleged that Ross and others doing business as Consortium    have committed and are continuing to commit [wire fraud] by operating an advance fee scheme. The FBI arrested Ross later that month. In April 1999, STAR filed a complaint against Faegre that alleged that Faegre breached its fiduciary duty and committed legal malpractice by failing to disclose information about Consortium that was material to the law firm's representation of STAR. The district court granted Faegre's motion for summary judgment, holding that the Denver Golf litigation did not constitute a material matter about which Faegre had to advise STAR, that Faegre did not breach any duty to or contract with STAR, and that STAR could not prove that Faegre's conduct constituted the but for cause of STAR's damages. STAR appealed and the court of appeals affirmed. The court of appeals declined to consider Cemara's inquiry because it did not proceed beyond an initial inquiry and did not involve a further exchange of information. The court of appeals held that the Denver Golf litigation did not constitute a material matter bearing on Faegre's representation of STAR and that the litigation did not create an impermissible conflict of interest for Faegre. Finally, the court of appeals briefly addressed STAR's causation argument, concluding that the record contained no evidence establishing that Faegre's failure to disclose the litigation to STAR was a substantial factor in causing STAR's losses. On appeal from summary judgment, we review whether there are any genuine issues of material fact and whether the district court erred in its application of the law. Patterson v. Wu Family Corp., 608 N.W.2d 863, 866 (Minn.2000); Offerdahl v. Univ. of Minn. Hosps. & Clinics, 426 N.W.2d 425, 427 (Minn.1988). We view the evidence in the light most favorable to the party against whom summary judgment was granted. Louis v. Louis, 636 N.W.2d 314, 318 (Minn.2001); Offerdahl, 426 N.W.2d at 427. We review de novo whether a genuine issue of material fact exists. Brookfield Trade Ctr., Inc. v. County of Ramsey, 609 N.W.2d 868, 874 (Minn.2000). We also review de novo whether the district court erred in its application of the law. Art Goebel, Inc. v. N. Suburban Agencies, Inc., 567 N.W.2d 511, 515 (Minn.1997). An attorney-client relationship gives rise to fiduciary duties: The attorney is under a duty to represent the client with undivided loyalty, to preserve the client's confidences, and to disclose any material matters bearing upon the representation of these obligations. Rice v. Perl, 320 N.W.2d 407, 410 (Minn.1982) (emphasis omitted) (quoting Ronald E. Mallen & Victor B. Levit, Legal Malpractice § 121 (2d ed.1981)). It is the undoubted duty of an attorney to communicate to his client whatever information he obtains that may affect the interests of his client in respect to the matters entrusted to him. Selover v. Hedwall, 149 Minn. 302, 306, 184 N.W. 180, 181 (1921). The parties do not dispute that Faegre and STAR had an attorney-client relationship. Thus, Faegre owed fiduciary duties to STAR. The parties also do not dispute that Faegre failed to disclose the information learned about Consortium from Cemara's inquiry and the Denver Golf litigation. We turn then to whether the undisclosed information was material to Faegre's representation of STAR. [2] Materiality is ordinarily a question of fact. See State v. Stith, 292 N.W.2d 269, 276 (Minn.1980) (stating that whether misrepresentations are material in securities fraud prosecution is a question of fact); Strouth v. Wilkison, 302 Minn. 297, 299, 224 N.W.2d 511, 513 (1974) (stating that whether defendant misrepresented a material fact is a question of fact). Materiality becomes a question of law, however, when reasonable minds can reach only one conclusion. See Lubbers v. Anderson, 539 N.W.2d 398, 402 (Minn.1995) (stating that proximate cause is generally a question of fact that becomes a question of law where reasonable minds can arrive at only one conclusion). We first address whether Faegre learned information about Consortium from Cemara's inquiry that was material to Faegre's representation of STAR. An applicant's assertion that a lender refused to fund a loan, without more, reveals nothing material about the lender. To a prospective borrower, the reasons for the lender's refusal are what matters. During two or three brief telephone calls, a Faegre attorney learned of Cemara's allegation that Consortium refused to fund a loan. There is no evidence in the record that Faegre learned why Consortium refused to fund the loan. There is no evidence in the record that Faegre knew about Kenney's letters that described Consortium's advance fee scheme. Finally, there is no evidence in the record that Faegre knew about Consortium's lending practices. Cemara's assertion that Consortium refused to fund a loan did not reveal anything to Faegre about Consortium's ability or willingness to serve as a lender. Therefore, reasonable minds can reach only one conclusion: that the information Faegre obtained about Consortium from Cemara's inquiry did not constitute a material matter bearing on its representation of STAR. Next, we address whether Faegre learned information about Consortium from the Denver Golf litigation that was material to Faegre's representation of STAR. Like Cemara's inquiry, Denver Golf's complaint does not reveal why Consortium refused to fund the loan. The complaint alleged a breach of contract. It alleged neither fraud nor that the breach was part of a larger pattern of refusals to fund loans. We hold as a matter of law, therefore, that the complaint revealed nothing about Consortium that was material to Faegre's representation of STAR. We turn to the oral allegations of fraud. Shortly after Faegre made its first appearance on behalf of Consortium in the case, Denver Golf's attorney told Faegre that he thought Consortium may have engaged in fraud. He also told Faegre that he did not believe that Consortium had sufficient capital to fund all of its commitments. He sought information that might substantiate his belief that there was a misrepresentation in Consortium's brochure, and did not assert that he had such proof. To determine whether the oral allegations of fraud constituted information that was material to Faegre's representation of STAR, we must analyze them within their context. First, Denver Golf and Consortium were litigating a claim that Consortium breached a contract by refusing to fund a loan. Denver Golf's complaint did not allege fraud. Second, there is no evidence in the record that Denver Golf offered evidence to support its allegations of fraud. [3] The attorney mentioned fraud in the context of a request for information to support his belief that Consortium engaged in fraud. Third, in March 1996, Consortium filed a motion to dismiss or, in the alternative, for summary judgment. Not until June 18, 1996, the day before Consortium terminated its loan agreement with STAR, did the magistrate recommend that Consortium's motion be denied. There is no evidence in the record that Faegre had reason to doubt Consortium's explanation that its execution of the loan agreement was merely a paper closing that was done in escrow and was subject to the approval of Consortium's Board. Without some evidence to support the oral allegations, Faegre had no reason to think that they were anything but litigation tactics, and reasonable minds can conclude only that the unsubstantiated allegations of fraud were not material to Faegre's representation of STAR. Therefore, we hold as a matter of law that Faegre did not learn information that was material to its representation of STAR from the oral allegations of fraud. Unquestioned fidelity to their real interests is the duty of every attorney to his clients. In re Lee's Estate, 214 Minn. 448, 460, 9 N.W.2d 245, 251 (1943). Attorneys must be vigilant to ensure that representation of one client does not jeopardize that of another. On these facts, we hold as a matter of law that Faegre did not obtain information from Cemara's inquiry or the Denver Golf litigation that was material to its representation of STAR. Consequently, we need not consider the parties' remaining arguments that assume the undisclosed information was material to Faegre's representation of STAR. Affirmed. ANDERSON, Paul H., and ANDERSON, Russell A., JJ., took no part in the consideration or decision of this case.