Mursau Corp. v. Florida Penn Oil & Gas, Inc.
638 F. Supp. 259, 1986 U.S. Dist. LEXIS 23472 (1986)
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Rule of Law:
A law firm representing a partnership in structuring an investment does not commit fraud or breach a fiduciary duty to a limited partner by failing to disclose its own eligibility for a finder's fee when the existence of the fee and the firm's potential conflicts of interest were disclosed, and the investor was represented by independent counsel. Furthermore, an attorney-client relationship is not formed between the partnership's law firm and the investor under these circumstances without mutual consent.
Facts:
- Mursau Corporation, through its president Thomas Murray, sought a tax shelter investment in a drilling program offered by Florida-Penn Oil & Gas, Inc. ('Fla-Penn').
- Murray contacted Goldberg & Snodgrass ('G&S'), the law firm retained by Fla-Penn to structure the program and prepare a tax opinion.
- G&S provided Murray with a Private Placement Memorandum (PPM) from a prior, similar program which disclosed the payment of a finder's commission, legal fees to G&S, and potential conflicts of interest, advising investors to seek independent counsel.
- Murray reviewed the PPM with his own independent counsel before signing a commitment letter for the new drilling program.
- Prior to the closing, Murray was aware of the $49,600 finder's commission provided for in the PPM.
- At the closing on October 30, 1981, Murray demanded check-signing authority for the partnership to dispute costs, including the finder's commission, but Fla-Penn refused.
- Despite the refusal of his demands, Murray proceeded with the closing and Mursau invested in the partnership.
- After the closing, G&S received the $49,600 finder's commission from Fla-Penn, which Murray discovered in December 1981.
Procedural Posture:
- Mursau Corporation filed a complaint in the United States District Court for the Western District of Pennsylvania (a federal trial court) against Florida-Penn Oil & Gas, its principals, and its law firm, Goldberg & Snodgrass.
- The complaint alleged violations of the Securities Act of 1933, common-law fraud, and breach of fiduciary duty.
- All defendants filed Motions for Summary Judgment, asking the court to rule in their favor without a full trial.
- The district court held oral argument on the motions.
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Issue:
Does a law firm commit common law fraud or breach a fiduciary duty to an investor by not disclosing that the firm would receive a finder's commission, where the investment memorandum disclosed the existence of the commission, disclosed the firm's representation of the partnership and potential conflicts of interest, and the investor was represented by independent counsel?
Opinions:
Majority - Cohill, Chief Judge
No. The law firm did not commit fraud or breach a fiduciary duty. A claim for common law fraud fails because the identity of the finder's fee recipient was not a material fact, as the existence of the fee itself and the firm's potential conflicts were already disclosed. A reasonable investor, aware of G&S's representation of the partnership, would have already been concerned about objectivity and, like the plaintiff here, would have consulted independent counsel, negating any justifiable reliance on the omission. Furthermore, no attorney-client relationship, and thus no fiduciary duty, existed between G&S and Mursau because there was no mutual consent; G&S's representation of the partnership was explicitly disclosed, Mursau was advised to and did retain its own counsel, and G&S provided no legal services directly to Mursau. The court also declined to imply a private right of action under § 17(a) of the Securities Act of 1933, following the trend in the circuit.
Analysis:
This decision emphasizes that in sophisticated commercial transactions, disclosures in offering documents and a party's representation by independent counsel are paramount. It significantly limits the ability of an investor to later claim fraud by omission or an implied attorney-client relationship with the deal's counsel when potential conflicts were disclosed. The ruling reinforces the principle that an attorney-client relationship requires mutual consent and cannot be unilaterally formed by one party's subjective belief. The court's refusal to imply a private right of action under § 17(a) of the Securities Act reflects a broader judicial trend towards statutory textualism and against creating remedies not expressly provided by Congress.
