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KIDDER, PEABODY & CO. v. IAG INT'L ACCEPTANCE GROU

July 22, 1998

KIDDER, PEABODY & CO., INCORPORATED, Plaintiff, against IAG INTERNATIONAL ACCEPTANCE GROUP N.V., Defendant.


The opinion of the court was delivered by: HAIGHT

MEMORANDUM OPINION AND ORDER

 HAIGHT, Senior District Judge :

 This motion to preclude evidence requires the Court to decide whether a party, defending itself at a jury trial against claims of abuse of the process of attachment and malicious prosecution, may offer expert opinion testimony from a professor of law with respect to the propriety of its conduct and that of its retained counsel.

 I.

 Familiarity is assumed with all the prior opinions in this case, by this Court and by the supervising Magistrate Judge. It is sufficient for present purposes to say that on June 27, 1994, plaintiff Kidder, Peabody & Co., Inc. ("Kidder") commenced this action against defendant IAG International Acceptance Group, N.V. ("IAG") for breach of an alleged agreement whereby IAG retained Kidder as its exclusive underwriter for a three-year period to engage in the securitization of auto loans. Upon filing of its action in this Court, Kidder obtained an ex parte order of attachment. Thereafter, in the circumstances described in the prior opinions, the attachment was vacated and summary judgment granted to IAG, disposing of all Kidder's claims against IAG. But IAG has asserted six counterclaims against Kidder, which will be tried by a jury.

 Kidder served its order of attachment upon, inter alia, Auto Marketing Network, Inc. ("AMN") and CS First Boston ("First Boston"), with whom IAG was negotiating an auto loan purchase transaction. In IAG's perception, Kidder had failed to close the earlier agreement with IAG, and it became incumbent upon IAG to mitigate its damages by finding a substitute underwriter. IAG alleges that as the result of service of Kidder's complaint and order of attachment upon AMN and First Boston, "First Boston and AMN both refused to perform in accordance with their agreement with IAG, and First Boston insisted instead on consummating a whole loan sale transaction involving solely AMN on June 30 1994, without involving IAG," to IAG's financial detriment. First Amended Counterclaim ("FAC"), PP 39-40.

 In these alleged circumstances, IAG asserts six counterclaims against Kidder: Count One, fraudulent misrepresentation; Count Two, negligent misrepresentation; Count Three, abuse of process (the order of attachment); Count Four, damages resulting from the attachment; Count Five, tortious interference with contract and business relations; and Count Six, malicious prosecution.

 The present motion implicates Counts Three, Four, and Six. IAG's theory of the case is in suing IAG and obtaining an order of attachment, Kidder acted with malice and for a "wholly improper and perverted purpose, namely the interference with IAG's contracts and business relationships with First Boston, AMN, and others, and to terminate IAG as an ongoing business, and ruin it financially, as retaliation for IAG's decision to use an investment banker other than Kidder, and other improper reasons." FAC, PP 64, 82.

 IAG thus charges Kidder with malicious prosecution. "In order to state a claim for the tort of malicious prosecution under New York State law, a plaintiff must prove (1) the initiation or continuation of a criminal proceeding against plaintiff; (2) termination of the proceeding in plaintiff's favor; (3) lack of probable cause for commencing the proceeding; and (4) actual malice as a motivation for defendant's actions." Murphy v. Lynn, 118 F.3d 938, 947 (2d Cir. 1997) (citation and internal quotation marks omitted). While Murphy v. Lynn arose in the context of a criminal prosecution, the same elements of malicious prosecution must be shown where the initial proceeding was civil. See Pinsky v. Duncan, 79 F.3d 306, 312-13 (2d Cir. 1996). Thus one element that IAG must prove is that in suing IAG for breach of contract and obtaining an order of attachment, Kidder was motivated by actual malice.

 Kidder's theory of the case is that it acted in good faith and without malice. In that regard, Kidder stresses that before suing IAG and obtaining an order of attachment, it retained and consulted outside counsel, the firm of Miller & Wrubel ("M&W").

 In aid of that defense, Kidder wishes to call as an expert witness at trial Professor Arthur R. Miller, the Bromley Professor of Law at Harvard Law School and noted authority on Federal civil practice. Professor Miller's report has been furnished to IAG's counsel as initial discovery under Rule 26(a)(2) and 26(b)(4), Fed. R. Civ. P. On the basis of that report, IAG now moves in limine to preclude Professor Miller's opinions.

 As a fallback position, IAG has also retained former Federal judge Arlin M. Adams as its expert witness on the subjects upon which Professor Miller opines. IAG has served counsel for Kidder with Judge Adams' opinion. Neither expert has as yet been deposed. Successor outside counsel for Kidder *fn1" state their intention of moving to disqualify Judge Adams, on the ground of an asserted attorney-client relationship between Kidder and the firm Judge Adams has served as counsel since his retirement from the bench. Since the participation of Judge Adams in the case would be mooted if IAG succeeds on its present motion to preclude the testimony of Professor Miller, Judge Adams' status is being held in abeyance.

 II.

 Considerable pretrial discovery has taken place, part of which is reflected in the papers submitted on the present motion.

 It appears that the Kidder employees who were involved in the decision to sue IAG were two "principal bankers," Stephen E. Deckoff and James E. Walker; Paul Saltzman, an "in-house deal lawyer"; and Peter Salerno, "the in-house litigator." *fn2" The attorneys at M&W who dealt with the case in its early stages were Joel Miller and Charles Jacob.

 Professor Miller reviewed the documents and depositions generated by discovery. According to his report, dated November 3, 1997:

 
Telephone conversations on June 24 and 27, 1994, among Joel Miller of Miller and Wrubel and the two bankers and the two lawyers at Kidder gave Joel Miller the factual background from which he could advise Kidder on its legal situation.

 Id. at 2. The M&W lawyers were given the contract upon which Kidder eventually brought suit. Id. June 25-26 was a weekend, id. at 3, so June 24 was a Friday. While IAG says that Kidder filed this action on "June 28, 1994," Main Brief at 2, in point of fact the Court's docket sheets show that Kidder, represented by M&W, filed its complaint and order of attachment on Monday, June 27, 1994. The complaint was entered on the docket on June 28, 1994, and the order of attachment, endorsed by this Court in the interim, on June 29, 1994.

 III.

 Kidder's defense, that it acted in good faith and upon the advice of counsel in suing IAG and obtaining and serving an order of attachment, implicates the principles expressed with respect to malicious prosecution in the Restatement (Second) of Torts § 675 (1977):

 
One who takes an active part in the initiation, continuation or procurement of civil proceedings against another has probable cause for doing so if he reasonably believes in the existence of the facts upon which the claim is based, and either
 
(a) correctly or reasonably believes that under those facts the claim may be valid under the applicable law, or
 
(b) believes to this effect in reliance upon the advice of counsel, sought in good faith and given after full disclosure of all relevant facts within his knowledge and information.

 The Second Circuit quoted this section of the Restatement in Pinsky v. Duncan, 79 F.3d at 312, and described its provisions as "a more modern definition of probable cause to initiate civil proceedings."

 Within these parameters of liability, the Kidder employees who participated in the initiation of the suit against IAG and the obtaining of an order of attachment will be able, if consistent with their oaths, to testify to the jury that at all times they acted in good faith; that at the pertinent times they relied in good faith upon the advice of outside counsel, M&W; and that they made full disclosure to M&W of all the relevant facts within their knowledge and information. The M&W attorneys will be able, for their part, to describe to the jury the facts that Kidder disclosed to them, and the advice that M&W gave to Kidder before the suit was commenced and the order of attachment obtained. Counsel for IAG may cross-examine those witnesses, and offer evidence probative of the issue of Kidder's good faith. The Court will instruct the jury on (1) the elements of the claim for breach of contract that Kidder asserted in its complaint against IAG, (2) the elements of the claim for malicious prosecution that IAG asserts in its counterclaim against Kidder and Kidder's defense of advice of counsel, and (3) the elements that a litigant must allege to obtain an order of attachment. At the end of the trial, the jury will be required to determine, as it must in all malicious prosecution cases, "both the reasonableness of a client relying upon the advice of an attorney . . . retained to render such advice and whether the client did so in good faith after making full disclosure," United States v. West, 22 F.3d 586, 599 (5th Cir. 1994).

 The question presented by IAG's motion to preclude is whether the jury, in determining the existence of good faith or malice on Kidder's part in suing IAG and obtaining an order of attachment, would be assisted in a manner the Federal Rules of Evidence allow by Professor Miller's opinions. *fn3"

 IV.

 Professor Miller's opinions, set forth in his report, are collected under two main points, quoted in Kidder's brief at 16 and 19:

 "I. Kidder sought and received advice from its outside counsel, Miller & Wrubel, relating to the dispute between Kidder and IAG, and used that advice consistent with the way in which a typical business client relies on its outside counsel."

 "II. Kidder and Miller & Wrubel both reasonably believed that Kidder had a prima facie case of breach of contract against IAG, had proper grounds for seeking an order of attachment, and properly did not move to confirm the attachment."

 Under each of these two main points, Professor Miller recites facts gleaned from discovery and expresses additional opinions supportive of his main points. These recitations and opinions are expressed in lettered paragraphs, some of which are supported by sub-paragraphs. I will quote from the lettered paragraphs.

 Point I.A : "Kidder gave Miller & Wrubel what Kidder understood to be the relevant facts relating to the negotiations and arrangements between Kidder and IAG." In over two pages of supporting sub-paragraphs, Professor Miller cites to testimony and documents generated by discovery, in aid of his summary of what the Kidder and M&W people were saying to each other and the meanings those individuals placed upon what was being said. To that purportedly factual summary, Professor Miller contributes an occasional conclusion of his own, viz., "Kidder, like any client, reasonably could believe that its outside counsel would read the documents that Kidder had provided and either understand them or ask questions of the in-house lawyers and the bankers to clarify anything that Miller & Wrubel needed to understand in order to evaluate the legal situation," P I.A.3.e, and "there was no need for Kidder to disclose to Miller [and Wrubel] Moody's problems with the proposed securitization," P I.A.7.

 Point I.B : "Salerno expected Miller & Wrubel to gather the relevant facts before instituting a legal action." For this proposition, Professor Miller cites to Salerno's deposition testimony.

 Point I.C : "If Miller & Wrubel needed further documents or information from Kidder, it could have asked for them." There is no citation to the record on discovery; this is an ex cathedra conclusion of Professor Miller's.

 Point I.D : "There is no indication from the documents I have examined or the deposition testimony that I have reviewed that Kidder attempted to withhold potentially harmful information from Miller & Wrubel." ...


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