Patrick T. Manion v. Stephen E. Nagin
394 F.3d 1062, 2005 WL 66346 (2005)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A client cannot maintain a legal malpractice claim against an attorney for failing to protect the client from the adverse consequences of the client's own bad faith conduct or malfeasance.
Facts:
- In 1995, Patrick Manion conceived of a plan to create a buying group for retail boat dealers, which would become the Boat Dealers’ Alliance, Inc. (BDA).
- Manion hired attorney Stephen Nagin to provide legal services for the creation and operation of BDA.
- As part of their fee arrangement, Nagin received a reduced hourly rate in exchange for ten percent of BDA's preferred stock, an ownership interest Manion had intended to hold exclusively.
- Nagin incorporated BDA and drafted its by-laws. When Manion expressed concern that the by-laws limited his control, Nagin assured him that his control was protected by a 20-year Management Agreement Nagin had drafted for him.
- In 1996, Nagin and Manion renegotiated their fee agreement, resulting in Nagin receiving a greater percentage of the preferred stock dividends, which was paid from monies that would have otherwise gone to Manion.
- On February 13, 1999, BDA terminated Manion’s employment.
- At a subsequent BDA meeting, Manion learned that Nagin had asked a BDA committee to find additional grounds to justify Manion's termination.
- When confronted, Nagin stated that he represented BDA, which was the first time Manion understood Nagin was not acting as his personal lawyer.
Procedural Posture:
- Patrick T. Manion, Jr., filed a lawsuit in federal district court against attorney Stephen E. Nagin, Nagin's law firms, BDA, and its individual members.
- The district court compelled arbitration for the claims against BDA and its members and stayed the proceedings against Nagin and his firms pending the arbitration's outcome.
- The arbitrator ruled in favor of BDA, finding it was justified in terminating Manion because he had acted in bad faith against the corporation's interests.
- The district court confirmed the arbitration award.
- Following the arbitration, Nagin and his law firms moved to dismiss Manion's complaint against them.
- The district court granted the motion to dismiss, holding some claims were barred by collateral estoppel and that Nagin never served as Manion's personal attorney.
- Manion (appellant) appealed the district court's dismissal to the U.S. Court of Appeals for the Eighth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a client have a cognizable legal malpractice claim against an attorney for failing to protect the client from adverse consequences that resulted from the client's own bad faith conduct?
Opinions:
Majority - Heaney, Circuit Judge.
No. A client cannot sustain a legal malpractice claim against an attorney for failing to protect the client from the consequences of the client's own bad faith actions. The court first held that Manion's tortious interference claim was barred by collateral estoppel because a prior arbitration proceeding had already determined that BDA's termination of Manion was justified due to his bad faith. This finding prevented Manion from proving an essential element of his claim. However, the court disagreed with the district court's finding that no attorney-client relationship existed between Manion and Nagin personally. An individual attorney-client relationship was formed because Nagin gave Manion legal advice on his personal interests, such as his employment contract and his control over the corporation, which were distinct from Nagin's representation of the corporate entity. Despite the existence of this personal attorney-client relationship, the court affirmed the dismissal of the remaining malpractice claims. Because Manion was bound by the arbitrator's finding that he had acted in bad faith, his claim essentially asked the court to hold Nagin liable for not protecting him from the consequences of his own malfeasance. Such a claim is not viable, as professional conduct rules forbid an attorney from assisting a client in fraudulent or deceitful conduct.
Analysis:
This decision clarifies the scope of the "entity rule," demonstrating that corporate counsel can form a separate, personal attorney-client relationship with a corporate founder by providing advice on the founder's individual interests. More significantly, it establishes a strong public policy limitation on legal malpractice claims, precluding recovery where the client's damages stem from their own bad faith conduct or malfeasance. The ruling prevents clients from using their attorneys as insurers against their own wrongdoing. It also reaffirms that findings from a confirmed arbitration award have a preclusive effect (collateral estoppel) in subsequent litigation, even against parties who were not part of the arbitration.
Unlock the full brief for Patrick T. Manion v. Stephen E. Nagin