WIENER, Circuit Judge:
This Louisiana diversity case arises out of a food-business merger gone sour. Plaintiff-Appellant/Cross-Appellee Al Copeland owned the controlling interest in companies that sought to acquire a chain of restaurants and retained Defendant-Appellee/Cross-Appellant Wasserstein, Perella, & Co. ("Wasserstein") to provide financial advice regarding the deal. After the corporation that resulted from the merger was forced into bankruptcy by creditors, Copeland sued his investment banker, settled that lawsuit, and then sued Wasserstein and one of its executive employees, Defendant-Appellee/Cross-Appellant Charles Ward. Copeland appeals from the district court's dismissal of his claims against Wasserstein and Ward, and they cross-appeal from the district court's denial of their motion for sanctions. We affirm the district court's dismissal of Copeland's claims; we reverse the court's denial of Wasserstein and Ward's motion for sanctions and remand for further proceedings consistent with this opinion.
FACTS AND PROCEEDINGS
In June of 1988, a corporation controlled by Copeland, A. Copeland Enterprises, Inc. ("Old ACE"), and its wholly-owned acquisition subsidiary, Biscuit Investments, Inc. ("Biscuit"), signed an engagement letter with Wasserstein, a New York investment bank boutique. This agreement committed Wasserstein to serve as the "exclusive financial adviser" to Old ACE and Biscuit in connection with their prospective acquisition of Church's Fried Chicken ("CFC"). Acting chiefly through Ward, its Vice Chairman, Wasserstein devised
The tender offer closed on March 21, 1989. Biscuit acquired 86.5% of CFC's shares and paid Wasserstein the balance of the fees owed under the engagement letter.
The terms of the bridge loan, which was by then in place, gave Merrill the right to designate two individuals to serve on Biscuit's board of directors. Six days after the closing of the tender offer, Merrill designated — and Copeland elected as directors — both Ward and Raymond Minella, the lead Merrill executive handling the merger. Ward agreed to serve only after Minella orally promised that Merrill would indemnify Ward for claims arising out of his service on Biscuit's board of directors. These two continued to serve on that board until September, 1989, when Biscuit merged into CFC, which thereupon changed its name to Al Copeland Enterprises, Inc. ("New ACE"). Copeland was the CEO and chairman of New ACE and owned all of its common stock. Again on Merrill's designation, Copeland elected Minella and Ward to serve as directors of New ACE. Ward served until January 1990, when he resigned after learning that Merrill would not indemnify him after all.
Flash back to 1988: Biscuit received a letter from Merrill stating that Merrill was "highly confident" that it could sell up to $200 million worth of junk bonds to capitalize New ACE; however, Merrill never took the bond issue to market. This lack of long-term financing prompted New ACE's creditors, including Merrill itself as the bridge lender, to put New ACE into involuntary bankruptcy in 1991.
The following year, 1992, Copeland personally sued Merrill, alleging negligence and breaches of contractual and fiduciary duties, and claiming damages resulting from the salary he lost, the royalties he had foregone, and the assets he had contributed to Biscuit. Merrill and Copeland finally settled that litigation in 1997: Merrill agreed to pay Copeland a substantial sum of money; Copeland agreed to release all claims against "Merrill Lynch, its past, present, and future officers, directors, employees, agents [and] representatives" (emphasis ours).
After settling with Merrill, Copeland filed the instant action against Wasserstein and Ward in Louisiana state court. Copeland alleged that Wasserstein, as a financial adviser to the corporations, and Ward, as a director of Biscuit and its successor, New ACE, had breached duties they owed to Copeland individually, had failed to disclose material information to him, and had caused him to rely detrimentally on their negligent or fraudulent misrepresentations. The gist of Copeland's allegations was that Wasserstein and Ward knew or should have known — but failed to disclose to Copeland — that, among other things, (1) the merger and financing plans were unworkable or unsound, (2) the Merrill "deal team" had no junk-bond experience, and (3) the junk-bond market had ceased to
Both Wasserstein and Ward removed Copeland's state-court suit to the Eastern District of Louisiana on diversity grounds and subsequently filed motions to dismiss pursuant to Rule 12(b)(6). The district court granted Wasserstein's motion, holding that it owed no fiduciary duty to Copeland personally and, alternatively, that his claims, which the court categorized as sounding in tort rather than in contract, had prescribed. The court denied Ward's dismissal motion, however, concluding that Copeland had pled (1) a conflict-of-interest claim that could support a fiduciary-duty claim and (2) a special-relationship claim that could support a nonderivative cause of action.
In 2000, Ward filed a summary judgment motion grounded in, inter alia, release, prescription, lack of standing, and absence of causation. In due course, the district court granted Ward's motion and dismissed Copeland's claims against him, stating that it "primarily rel[ied] upon ... the threshold issue, and that is the effect of that settlement agreement between Copeland and Merrill Lynch," in which Copeland had released, among others, Merrill's "representatives." In addition to dismissing all claims against both Wasserstein and Ward, the court awarded them costs.
Ward and Wasserstein had filed a motion for sanctions against Copeland and his counsel on the theory that they knew when the case was filed that it was time-barred and otherwise meritless. After analyzing the motion from the bench, but discussing only the release issue in any detail, the trial court orally denied Wasserstein and Ward's motion for sanctions.
After final judgment issued, Copeland timely appealed the district court's grants of Wasserstein's 12(b)(6) motion and Ward's summary-judgment motion, as well as the award of costs. Wasserstein and Ward timely cross-appealed the court's denial of their motion for sanctions.
Standards of Review
We examine a district court's grants of
By contrast, we review the denial of sanctions and the allocation of costs for abuse of discretion.
Fiduciary Duty of Wasserstein
Copeland appeals the district court's dismissal of his claim that Wasserstein breached a fiduciary duty. In the district court, the parties disputed (1) whether an investment bank acting as a financial adviser owes a corporate client any fiduciary duty; (2) whether, if such a duty is owed, a controlling shareholder can maintain a
Even when we assume without deciding that (1) Wasserstein owed a fiduciary duty to Biscuit and Old ACE, and (2) Copeland's alleging a breach of Wasserstein's fiduciary duty would entitle him to sue Wasserstein directly, we are convinced that this purported cause of action has prescribed. Under Louisiana law, a claim for breach of a fiduciary duty is generally personal and prescribes in ten years, and a negligence claim is delictual and prescribes in one year.
The trial court correctly characterized the gravamen of Copeland's case. His petition lays out in its count against Wasserstein a litany of instances in which Wasserstein allegedly knew or should have known, but failed to disclose, facts key to shaping Copeland's understanding of the transaction and his willingness to go forward with it. Even if proven, however, these failures would be violations solely of Wasserstein's professional duty of care. In an effort to invoke Louisiana's ten-year period of liberative prescription, Copeland has attempted to make out two conflicts of interest that would transmogrify these violations into breaches of Wasserstein's duty of loyalty. But the first alleged conflict — that a contingency fee biased Wasserstein toward pushing the deal through — sweeps too broadly, both because the engagement letter fully disclosed the fee arrangement and because such arrangements are common practice in the investment banking industry. The second alleged conflict — that because Wasserstein lacked underwriting capacity, it favored maintaining its business relationship with Merrill over its duty to advise Copeland's companies — is not alleged in the complaint and presents a contention first raised on appeal, and therefore is not an argument that we will
To summarize, Copeland failed to plead facts that would bring his fiduciary-duty claim under a ten-year prescriptive period. The district court thus properly dismissed this claim against Wasserstein on Louisiana's one-year period of liberative prescription for delictual claims.
Detrimental Reliance on Wasserstein
Copeland also appeals from the district court's Rule 12(b)(6) dismissal of his claim that he detrimentally relied on Wasserstein's assurances regarding Merrill and the merger financing plan. The district court found that this claim too had prescribed in one year; that because the claim was "based on a failure to meet professional obligations or competence," it was "rooted in tort."
Consequently, even if under Louisiana law Copeland could justifiably rely on Wasserstein's representations regarding third parties, any detrimental-reliance claim arising out of the merger has prescribed. The prescriptive period is not determined by the label of the cause of action but by "the nature of the transaction and the underlying basis of the claim."
We discern no valid reason to treat a financial adviser such as Wasserstein differently. Wasserstein can reasonably be thought to have promised only to advise Old ACE and Biscuit diligently, in accordance with the standard of care among financial advisers. Copeland claims that Wasserstein's advice fell short of that standard; but this states a quintessentially delictual claim that prescribed years ago,
The district court also properly dismissed as prescribed Copeland's claims of negligent or intentional misrepresentation, which are also delictual.
Release of Ward
Copeland's claim against Ward arises solely from Ward's service on boards of directors of Copeland's corporations — first Biscuit and then New ACE. The district court orally granted Ward's motion for summary judgment because in Copeland's 1997 settlement with Merrill, he had released Merrill's "representatives." The court found Ward, the director, to have been a "representative" of Merrill within the meaning of that release. It reads in part:
We must construe this settlement agreement — a "transaction" in the lexicon of the Louisiana Civil Code — under article 3073:
The burden of proving the scope of a release falls on the defendant, because the essence of release is res judicata, an affirmative defense.
Two facts chiefly persuaded the district court that Ward, during his service on the boards of Biscuit and New ACE, was a "representative" of Merrill within the meaning of the settlement agreement's release clause. First, Ward stated that he served on the boards solely at the request of Merrill and then on the condition that Merrill indemnify him, which Minella orally promised it would do. The court properly credited this undisputed evidence. Second, Copeland and his counsel repeatedly characterized Ward as a "representative" of Merrill in testimony and pleadings ranging throughout this case, the prior suit against Merrill, and the New ACE bankruptcy proceeding.
Whether Copeland's arguments here totally founder on his previous characterizations of Ward as a "representative" of Merrill on the corporations' boards depends in part on the preclusive effect of those statements under Louisiana law. Absent prejudice to an adverse party, he who has made an admission in a prior suit "is not barred from denying the facts contained in that admission in a subsequent suit."
We also take note, in our de novo review, of several further undisputed facts. By the time Ward was designated by Merrill as one of the two directors on Biscuit's board, Ward's services to Copeland's corporations under the engagement letter had ceased altogether. It is clear, moreover, that Ward was serving on the New ACE and Biscuit boards as Merrill's watchdog, both to keep Merrill informed and to prevent Copeland from engaging in rapacious affiliate transactions. The bridge loan documents provided that the Merrill-designated directors — in this event, Ward and Minella — would remain on Biscuit's board "so long as the Bridge Financing remains outstanding" or until they resigned, and that they would have veto power over large transactions between Biscuit and its controlling shareholder, Copeland. As Copeland's counsel put it before the district court, "That was the sole basis on which [Ward and Minella] were there [on the boards] representing Merrill Lynch." Copeland himself summed up the situation by stating in a deposition that "Merrill Lynch had two positions on our board" and that he "had no choice" but to agree to the appointment of Ward as a director.
This evidence that Ward was a Merrill representative was contraposed against only an affidavit from Copeland, executed late in the game, in which he asserted conclusionally that he had not intended to release Ward. The affidavit did not explain why Copeland had previously referred to Ward as a Merrill "representative." The district court therefore found Copeland's assertion "basically self-serving, indeed, not supported by his own sworn testimony at other times." We agree that even in this summary judgment posture, Copeland's description of his own intent, coming at the eleventh hour, rings hollow.
While the intent to compromise is usually, under Louisiana's transaction jurisprudence, an issue of fact that is not appropriate for summary judgment, this case involves the kind of "explicit and detailed" contract of compromise,
Copeland's affidavit does not attempt to explain the contradiction between his statement there that he did not intend to include Ward as a "representative" in the release and his deposition testimony that characterized Ward as a "representative."
Given that the discrete facts are undisputed, even when we, in our de novo review, view them in the light most favorable to Copeland, we reach the legal conclusion that Ward was released by Copeland when Copeland released Merrill's representatives from liability. In reaching this conclusion, both we and the district court are following our summary-judgment jurisprudence. We are satisfied that the district court correctly granted summary judgment for Ward.
Even though the district court decided Ward's motion on the release issue, it expressly acknowledged the presence of other potentially valid grounds for dismissing Copeland's claims against Ward on summary judgment. In like manner, we affirm on the release reasoning of the district court, yet our de novo review of the summary-judgment record and the applicable law convinces us that several of the alternative grounds — including prescription, causation, and the nonderivative posture of Copeland's suit — would likely support summary judgment for Ward equally well. Ward's causation argument is particularly well-taken. The acquisition closed on March 21, 1989, and Biscuit and Merrill entered into the necessary financing agreement on the same day; yet Ward did not join Biscuit's board until March 27. When Ward began his board service, therefore, it was too late for him to disclose anything to Biscuit or Copeland that would have influenced Biscuit's decision to enter into the obligations that eventually bankrupted its successor.
E. Allocation of Costs
Copeland also appeals the district court's award of $23,092 in photocopying and videotaping expenses incurred by Wasserstein and Ward. Contending that Wasserstein and Ward inadequately documented these claims, Copeland cites cases from other circuits and districts for the proposition that Wasserstein and Ward should have itemized their bill. The applicable local rule, however, does not mandate itemization.
Wasserstein and Ward have cross-appealed the district court's denial of their motion for sanctions against Copeland and his counsel. As an initial matter, we reject Copeland's contention at oral argument that Wasserstein did not preserve the sanctions issue for its cross appeal. Even though the sanctions motion itself contains Ward's name alone as movant, the contemporaneously filed memorandum in support of that motion, to which the motion itself expressly refers, names both Wasserstein and Ward as movants. When we review the motion and the memorandum in pari materia, we are satisfied that the motion was made on behalf of both parties. Wasserstein's cross appeal is thus properly before us.
Wasserstein and Ward charge here, as they did in the district court, that Copeland and his lawyer are sanctionable on three distinct grounds. First, they contend that in filing this lawsuit, counsel violated his duty of reasonable inquiry under Article 863 of the Louisiana Code of Civil Procedure because he knew that Copeland's claims had prescribed, that Ward could not have caused Copeland's injuries, and that Copeland had released Ward. Second, Wasserstein and Ward seek sanctions under 28 U.S.C. § 1927 and Federal Rule of Civil Procedure 11 as well, contending that, to prevent the district court from granting Ward's 12(b)(6) motion, Copeland and his attorney essentially fabricated a conflict of interest that they knew did not exist. Third, Wasserstein and Ward repeat their urging before the district court that it sanction Copeland and counsel under Federal Rule of Civil Procedure 37 because they refused to produce copies of tax returns or the settlement agreement with Merrill until the court was required specifically to order them to do so.
We review a district court's denial of sanctions for abuse of discretion.
A trial court may make "oral findings of fact" on a sanctions motion,
Here, in ruling from the bench on the sanctions motion, the district court dismissed Wasserstein's and Ward's multifarious arguments summarily and in the broadest terms. The court did not discuss each allegation of sanctionable conduct or give its reasons for dismissing each. Rather, the court stated globally that it had "no reason to believe that counsel here acted with any intentional or even negligent capacity for proceeding with an action that he knew or should have known would not ultimately be viable." On the release issue, the court described Copeland's argument as "an interesting point, a point I disagree with," but not a "totally untenable" position. "Therefore," the court concluded, "the motion for sanctions are [sic] denied." The court never addressed Ward and Wasserstein's argument for sanctions based on causation, or their allegation that Copeland's conflict-of-interest argument was baseless, or their belief that he had no standing to bring a nonderivative claim, or their charge that he abused the discovery process.
We do not relish prolonging secondary litigation such as this any further than necessary, but we are simply unable to review this issue on appeal without at least a brief statement, on each point, of the reasons for denying sanctions from the perspective of the judge best positioned to expound on these matters. Our constricted review of the motion in its current condition does suggest that it also raises issues of promptness and of shelter under Rule 11's 21-day safe harbor, which due process may require. With no intention to imply how this issue should come out in the end, we reverse and remand for more detailed findings with respect to Ward and Wasserstein's motion for sanctions, including a fuller explication of the court's ruling. In so doing, we leave to the sound discretion of the district court the determination of what further proceedings, if any, may be necessary or desirable.
We affirm the district court's 12(b)(6) dismissal of the claims against Wasserstein as prescribed and its summary judgment dismissal of the claims against Ward as released. We also affirm the award of costs to Wasserstein and Ward. As for sanctions, however, we reverse and remand
AFFIRMED in part, REVERSED in part, and REMANDED.