Morrison v. Char

797 F.2d 752

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 15, 1986
• Docket: No. 85-1762
• Status: Published

Opinions

SNEED, Circuit Judge:

This diversity action involves a claim of legal malpractice against an attorney, Vernon Char, and his law firm. The district court granted summary judgment for Char. Because genuine issues of material fact exist, we reverse and remand.

I.

FACTS AND PROCEEDINGS BELOW

In mid-1977, appellants Gary Morrison, Jose Ramirez, Gregory Mullally, and Colleen Brink (the Nevada group) were the shareholders and officers of a Nevada corporation, Nevada Amusement Systems, Inc. (NAS). Morrison and Mullally handled the business aspects of NAS, while Ramirez was responsible for the technical work. The Nevada group, deciding to expand its business to Hawaii, met with Robert Dawson, Ronald Sowell, and Lawrence Goldberg, the Hawaii group. Appellee Vernon Char, a partner in the law firm of Damon, Key, Char & Bocken,¹ previously had represented ventures for both Dawson and Sowell and had assisted the Hawaii group in incorporating Roller World, their new roller rink.

The Nevada and Hawaii groups conducted their initial meeting in Las Vegas and arrived at an agreement under which NAS would provide amusement machines and the Hawaii group would provide a warehouse and office facility. Thereafter, Morrison and a friend of his, C. Dan Bowman, a recent law school graduate and member of the Nevada bar, met with Char and Dawson in Hawaii. Morrison and Dawson informed Char of their agreement to form a Hawaii corporation, to be called Amusement Systems of Hawaii, Inc. (ASH). Appellants allege that Bowman asked Char whether Char was going to represent the Nevada group in this venture or whether local counsel should be obtained. Char, it is alleged, answered that he would represent the Nevada group. Appellants’ Brief at 5. According to the appellants, “[B]oth Morrison and Bowman knew that Char was then representing Roller World and the Hawaii group — ” Id. at 5.

In the process of incorporating ASH, Char suggested that the initial agreement between the two groups be altered in several ways. Compare C.R. subdivision 15, exhibit A, with id. exhibits H, K. First, under the articles of incorporation, he suggested that ASH should be minimally capitalized and should lease, rather than buy, its games from NAS. Second, although the original agreement called for both the Hawaii and Nevada groups each to own 50% of ASH’s stock, the Hawaii group was the only group appearing on the incorporation paperwork. Later 50% of ASH’s stock was transferred to the Nevada group. The articles of incorporation for ASH were signed on October 17, 1977.

The next step in getting the venture under way was to draw up a contract between ASH and Roller World under which ASH would provide and service coin-operated electronic games for Roller World’s new rink in return for a split of the take. Morrison prepared an eighteen-page draft of the contract by using a copy of a contract between NAS and a bowling alley operator, substituting the names of ASH and Roller World for the previous parties. This draft was forwarded to the Hawaii group for review. Morrison and Bowman again travelled to Hawaii, and Bowman made changes in Morrison’s draft during the trip. The two met with the Hawaii group in Char’s office for between three and four hours, at the conclusion of which they agreed to have Char redraft the contract “to reflect the discussions that had just taken place,” Appellants’ Brief at 7. Char notes that his alleged agreement to “represent ‘everybody’s interests’ ... was made at the end of the meeting after both sides had hammered out the terms of the contract.” Answering Brief of DefendantsAppellees at 5.

Char allegedly made further alterations in the contract, which he then sent to ASH and Roller World at their joint corporate office in Honolulu and to Morrison in Nevada. Bowman, the recent law graduate, did not receive a copy of the draft, which by this time had shrunk to six pages. See C.R. subdivision 1, exhibit A. Morrison called Char with respect to questions he had concerning Char’s draft; thereafter, Morrison redrafted the contract to reflect these discussions. This contract was executed on December 8, 1977.

Other contracts, reflecting other aspects of the venture, followed soon afterward. ASH agreed to lease from NAS the games that ASH would then supply to Roller World, in exchange for half of ASH’s share of the profits from the ASH/Roller World deal. In March of 1978, ASH agreed to provide and service games at another of the Hawaii group’s roller rinks, Skate World, Inc. This agreement appears to have been signed after Char wrote a letter on March 9, 1978, to both the Nevada and Hawaii groups. The Nevada group letter was addressed to Morrison, Goldberg, and Sowell; it responded to a question Bowman had raised about the ASH/Roller World contract. See C.R. subdivision 15, exhibit F. Char again did not send Bowman a copy of this letter. Id. The ASH/Skate World agreement was identical to the ASH/Roller World agreement, and ASH entered into an agreement with NAS identical to the previous supply contract for Roller World.

The formation of ASH and these agreements formed the structure of the venture. In mid-1978, however, the working relationship between the Nevada group and the Hawaii group began to sour. The problems pertained to how profits were to be determined. The Nevada group accused the Hawaii group of making unauthorized deductions in computing the Nevada group’s share. These deductions arose from the cost of an attendant monitoring the games. The Nevada group contended that these deductions were affecting adversely their ability to supply the games to Roller World and Skate World. By the fall of 1978, the Nevada group hired local Hawaii counsel to attempt to resolve the situation. On December 21, 1978, Char, as attorney for Roller World and Skate World, terminated the ASH/Roller World and ASH Skate World contracts.

After an attempt to sue the members of the Hawaii group failed,² the Nevada group sued Char. The district court granted Char’s motion for summary judgment, based on a finding that Char represented the Hawaii group and Bowman represented Morrison, and that there had been no conflict of interest. See Appellants’ Excerpt of Record (Appellants’ E.R.) subdivision 20. This appeal followed.

II.

DISCUSSION

A. Standard of review

The district court’s grant of summary judgment is reviewed, as all agree, de novo, “viewing the evidence in the light most favorable to the losing party, to determine if the prevailing party was clearly entitled to judgment as a matter of law.” Bohemia, Inc. v. Home Insurance Co., 725 F.2d 506, 508 (9th Cir.1984). Even though the district court entered findings of fact,³ these findings of fact are also subject to de novo review.⁴ See Garter-Bare Co. v. Munsingwear, Inc., 650 F.2d 975, 980 (9th Cir.1980); United States v. Washington, 645 F.2d 749, 752 (9th Cir.1981).

B. The district court erred in granting summary judgment for Char

There is a genuine dispute about whether Char ever represented the Nevada group, when, if ever, he represented that group, and whether Char had a conflict of interest in any such representation; all of these facts are material.

The district court, in granting summary judgment for Char, found that the Nevada and Hawaii groups had already agreed on the terms of ASH’s incorporation before the first meeting with Char, that Bowman participated extensively in drafting the ASH/Roller World contract, and that “during the hammering out of th[at] contract^] Vernon Char acted for the Hawaii group and Dan Bowman advised Morrison and the Nevada group.” Appellants’ E.R. subdivision 20, findings 3-6, 11-13, 16, 19. In making its finding that “there is no dispute of a material fact regarding the issue of conflict of interest or full disclosure,” the court found specifically that Char had not been involved in a conflict of interest and that there had been “full disclosure.” Id. findings 21-24.

In making those specific findings to support its grant of summary judgment, the district court erred. Enough evidence had been introduced on both sides to establish that genuine issues of material facts exist. First is the question of whether Char actually said he was going to represent everyone’s interests. Second, and more important, is the issue of when Char made this alleged statement. Compare C.R. subdivision 15, Morrison deposition at 78 (statement allegedly made at incorporation meeting), with R.T. at 25-26 (statement allegedly made at the “hammering out” of the ASH/Roller World contract). Third, the issue of what “representing everyone’s interests” supposedly meant is still disputed. Compare C.R. subdivision 15, Morrison deposition at 17 (statement construed as referring to long-term representation), with C.R. subdivision 19 (statement meaningless because of Bowman’s “actual” representation of the Nevada group). The fact that Char sent the ASH/Roller World contract to Morrison instead of to Bowman, Morrison’s alleged attorney, see R.T. at 22-23, suggests that Bowman did not represent the Nevada group. Similarly, Char’s March 1978 letter interpreting the ASH/Roller World contract lists Morrison, not Bowman, as an addressee. But see R.T. at 34-35 (district court disagrees with this interpretation of Char’s actions). Finally, the issue remains as to whether Char fully disclosed to the Nevada group his representation of the Hawaii group.⁵

Hawaii Code of Professional Responsibility DR 5-105(B) (1984)⁶ states that “[a] lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client.” In a limited exception to this disciplinary rule, 5-105(C) adds that “a lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each.” Rule 5-105 calls for exquisite factual determinations in its application. Cf. Unified Sewerage Agency v. Jelco Inc., 646 F.2d 1339, 1350 (9th Cir.1981) (using a fact-based determination of “adequate representation” requirement of Oregon’s DR 5-105(C), which is identical to Hawaii’s 5-105(C)); Trone v. Smith, 621 F.2d 994, 998-1001 (9th Cir.1980) (setting forth factors that affect the “appearance of a breach of confidence” in violation of Canons 1, 4, 5, 6, 7, and 9). Summary judgment is patently inappropriate in this case. As we noted in Garter-Bare, 650 F.2d at 979, summary judgment “is not a device to be employed to dispose of litigation simply because it appears that the plaintiff may have a weak case.” A “weak case,” on paper, may become a compelling case at trial.

C. Whether Char represented the Nevada group at the time of ASH’s incorporation is properly before this court

The foregoing is predicated upon the assumption that the issue whether Char ever represented the Nevada group was properly before the district court and this court as well. Clearly we believe that it was. Char, however, contends otherwise. He claims that the Nevada group “never raised th[is] question[] of fact either in [its] Memorandum in Opposition to Motion for Summary Judgment ... or at the hearing before [the district court].” Id. at 9.

Char’s argument ignores pleadings and misquotes testimony. The Nevada group raised the issue of Char’s role in the incorporation of ASH in its complaint at 16 and 17. See C.R. subdivision 1. Char denied pleadings 16 and 17 in his answer. See C.R. subdivision 5. As part of his Memorandum in Support of Motion for Summary Judgment Against Plaintiffs, Char referred to the contention that “Plaintiffs have alleged that Char represented them and that he had a conflict of interest in representing the Hawaii group in organizing ASH.” C.R. subdivision 15. In one of the attached exhibits, Char included excerpts from Morrison’s deposition in which Morrison stated that Char had told the Nevada group not to seek “outside local counsel ... in connection with forming the Hawaii corporation.” C.R. subdivision 15, Morrison deposition at 78. The district court, in granting the motion for summary judgment, mentioned that Char had incorporated ASH (although it made no conclusion as to his representation of the Nevada group at that point). See Appellants’ E.R. subdivision 20. Most telling is the fact that Char omitted the portion of page 21 of the Reporter’s Transcript that referred to ASH’s incorporation:

THE COURT: Now you are talking about this transaction?

MR. BRIDGMAN: [attorney for the Nevada group]: I’m sorry, Your Honor.

THE COURT: You were talking about this agreement?

MR. BRIDGMAN: Both the drafting of the contract and the organization of the corporation____

R.T. at 20-21.

It follows that the Nevada group raised the representation issue in connection with the motion for summary judgment and thus is entitled to argue it on appeal. Cf. C. Wright, A. Miller & M. Kane, 10 Federal Practice and Procedure § 2716, at 650-51 (1983) (noting that the appellate court, on review of a grant or denial of a motion for summary judgment, may “consider only those papers that were before the trial court”). Therefore, we reverse the judgment of the district court and remand for further proceedings.

REVERSED AND REMANDED.

1 . At the time of the lawsuit, the firm’s name was Damon, Shigekane, Key & Char. See Appellants’ Brief at 3.

2 . The Nevada group sued the Hawaii group in Morrison v. Goldberg, No. 80-00280, but that case was dismissed with prejudice on April 7, 1982. See Answering Brief of Defendants-Appellees at 6.

3 . When a district court adopts findings of fact that were "suggested" by the “successful attorney" in a summary judgment motion, those findings are not particularly useful upon review. Garter-Bare Co. v. Munsingwear, Inc., 650 F.2d 975, 980 (9th Cir.1980) (quoting Edward Valves, Inc. v. Cameron Iron Works, Inc., 289 F.2d 355 (5th Cir.), cert. denied, 368 U.S. 833, 82 S.Ct. 55, 7 L.Ed.2d 34 (1961)). Anderson v. City of Bessemer City, 470 U.S. 564, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985), reemphasizes the principle that findings of fact submitted by the prevailing party after a trial and adopted "verbatim" by the judge are reviewed under the "clearly erroneous" standard. But the situation here is different; these findings of fact were proposed to justify a motion for summary judgment, not to accompany a judgment after a full trial. As such, City of Bessemer City is inapposite.

4 . EEOC v. Maricopa County Community College Dist., 736 F.2d 510, 513 (9th Cir.1984), which applied the clearly erroneous standard of review to stipulated findings of fact submitted on cross-motions for summary judgment, is easily distinguishable from the instant case, in which the parties obviously do not agree about the facts involved.

5 . Some of the disputed issues center on conflicts in the testimony of witnesses for the plaintiffs. Obviously, the nonmoving party in a motion for summary judgment cannot forestall the granting of such a motion by creating its own dispute, without regard to the other side’s position. See Radobenko v. Automated Equipment Corp., 520 F.2d 540, 544 (9th Cir.1975). Here, however, even if the issue of the number of Char/Nevada group meetings were not a genuine issue, so many other issues that are genuinely disputed remain that the plaintiffs here cannot be accused of blocking the motion for summary judgment by sleight-of-hand.

6 . This diversity action was brought in the federal District Court for the District of Hawaii; thus, Hawaii law should be applied. See Day & Zimmermann, Inc. v. Challoner, 423 U.S. 3, 4, 96 S.Ct. 167, 168, 46 L.Ed.2d 3 (1975) (per curiam).