United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 05-4020
___________
Richard D. Anheluk, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* District of North Dakota.
Richard A. Ohlsen; Richard A. *
Ohlsen, Ltd., *
*
Appellee. *
___________
Submitted: May 19, 2006
Filed: August 21, 2006
___________
Before LOKEN, Chief Judge, JOHN R. GIBSON, and COLLOTON, Circuit Judges.
___________
COLLOTON, Circuit Judge.
Richard Anheluk filed this diversity action against Richard Ohlsen for legal
malpractice. The suit is based on Ohlsen’s representation of Anheluk in a lender
liability lawsuit brought by Anheluk in North Dakota state court. The district court*
granted Ohlsen’s motion for summary judgment, and we affirm.
*
The Honorable Daniel L. Hovland, Chief Judge, United States District Court
for the District of North Dakota.
I.
Anheluk, a court reporter, first contacted Ohlsen in 1994 or 1995 regarding the
possibility of bringing a lender liability lawsuit against Western Cooperative Credit
Union, former Western Cooperative employee Elaine Muth, and Community First
National Bank. In September 1993, Anheluk had solicited from Western Cooperative
an offer for a loan insured by the Federal Housing Administration (“FHA”). He was
referred to Muth, who was employed at Western Cooperative at the time. Muth was
fired while in the process of reviewing Anheluk’s application, and although the
application eventually was approved, Western Cooperative’s loan offer was delayed
as a result. Anheluk ultimately rejected Western Cooperative’s offer and acquired a
loan from Community First instead. The United States Department of Housing and
Urban Development did not endorse the loan, a necessary step in the process to
receive FHA loan insurance, see 24 C.F.R. §§ 200.141(a), 200.150-152 (1993), so
Anheluk’s loan was uninsured. (Appellant’s App. at 187).
Anheluk eventually hired Ohlsen on May 26, 2000. Ohlsen filed a complaint
for Anheluk dated June 23, 2000, against Western Cooperative, Muth, and
Community First. By September 22, 2000, Anheluk had paid Ohlsen $1706, and had
forgiven outstanding court reporter fees of $782 that Ohlsen owed Anheluk. In
litigating the case, however, Ohlsen failed to respond to discovery requests by the
defendants, and the state court granted defendants’ motions compelling Ohlsen to
respond. Ohlsen still failed to respond, and on February 25, 2002, the state court
granted the defendants’ motions to dismiss Anheluk’s suit with prejudice. Ohlsen did
not make Anheluk aware of the discovery requests, the motions to compel discovery
and dismiss, or the district court’s order dismissing his suit. Ohlsen later explained
that he “drew the conclusion that [Anheluk] wasn’t interested in going forward” with
the suit, since Anheluk “ignored the case for years at a time.”
-2-
Anheluk called Ohlsen in July 2002 inquiring about the status of his case, and
Ohlsen responded: “What do you mean? That’s been dismissed.” Ohlsen said that
he would review his file and explain to Anheluk what had happened, but Ohlsen never
followed through on that assurance. Anheluk later learned from Community First’s
attorney about Ohlsen’s failure to respond to discovery requests, the motions to
compel discovery and to dismiss, and the court’s judgment dismissing Anheluk’s suit.
Anheluk filed this legal malpractice action against Ohlsen and his law firm,
alleging negligence and breach of contract. In ruling on Ohlsen’s motion for summary
judgment, the district court applied North Dakota’s “case within a case” doctrine, and
concluded that Anheluk had not introduced sufficient evidence that Ohlsen’s
misconduct was the proximate cause of Anheluk’s lack of success in the state court.
The court thus held that Anheluk had not presented a submissible legal malpractice
claim against Ohlsen, and dismissed the complaint.
II.
According to North Dakota law, a client who alleges a legal malpractice claim
against his attorney must establish the existence of an attorney-client relationship, a
duty owed by the attorney to the client, a breach of that duty by the attorney, and
damages sustained by the client that were proximately caused by the breach of duty.
Dan Nelson Constr., Inc. v. Nodland & Dickson, 608 N.W.2d 267, 271 (N.D. 2000).
To prove proximate cause, the client must satisfy the “case within a case” doctrine by
showing that, but for the attorney’s misconduct, the outcome of the underlying
litigation would have been more favorable for the client. Id.; Wastvedt v. Vaaler, 430
N.W.2d 561, 567 (N.D. 1988). Anheluk does not dispute the applicability of this
doctrine to his attorney malpractice suit, but argues that the district court erred by
concluding that the outcome in his underlying state court case would not have been
more favorable to him without Ohlsen’s negligence and misconduct. We review de
novo a district court’s grant of summary judgment, considering the evidence and all
-3-
reasonable inferences in the light most favorable to the non-moving party. Macawber
Eng’g, Inc. v. Robson & Miller, 47 F.3d 253, 255 (8th Cir. 1995).
Anheluk’s underlying complaint alleged a claim for breach of contract and tort
claims for negligence, misrepresentation, and overreaching, but his appeal is limited
to the district court’s ruling on the contract claims. With respect to his breach of
contract claims against Western Cooperative and Muth, Anheluk argues that Muth and
Aldon Beggs, Western Cooperative’s president, made oral promises on behalf of
Western Cooperative to offer Anheluk an FHA-insured loan. In September 1993,
Anheluk approached Muth at Western Cooperative about acquiring an FHA-insured
loan to finance the operation of a feedlot near Dickinson, North Dakota. He planned
to mortgage his home and ten acres of his feedlot property to secure the loan.
Anheluk explained to Muth that time was of the essence in obtaining the loan, because
he planned to use a portion of the loan to cover tax liability due on October 15. Muth
responded that it would be “no problem” to complete the loan in three weeks, since
she had previously “done these in a week or two.”
Circumstances changed, however, when Muth contacted Anheluk on October
7 and explained that she was planning to leave Western Cooperative to begin a job
with Liberty National Bank. Muth offered Anheluk an opportunity to obtain the loan
he sought through Liberty National, but she explained to him that whether he worked
with her at Liberty National or stayed with Western Cooperative, he would not receive
the loan by the date his tax liability was due. Anheluk complained to Beggs about
Muth’s plans to move to Liberty National. Beggs assured Anheluk that “[w]e’ll take
care of you,” and terminated Muth’s employment with Western Cooperative that day.
According to the evidence taken in the light most favorable to the plaintiff,
Anheluk continued the application process with Western Cooperative because of
Beggs’s representation and Muth’s assurances that she saw “no problem” with
completing the loan. Anheluk received from Western Cooperative a commitment
-4-
letter dated February 4, 1994, approving his loan application, but he rejected the offer
because of conditions that required Anheluk to make repairs to the home that would
serve as collateral for the mortgage.
Anheluk argues that he presented a submissible “case within a case” on the
claim that Western Cooperative and Muth breached oral contracts in which they
agreed to make him a loan. To establish a breach of a lender liability contract, the
mortgagor must establish a promise made by the mortgagee, reliance on the promise
by the mortgagor, breach of the promise by the mortgagee, and damages caused by the
mortgagee’s breach. See Delzer v. United Bank of Bismark, 559 N.W.2d 531, 534-35
(N.D. 1997). We conclude that Anheluk cannot prevail on this breach of contract
claim, because neither Muth nor Beggs made an enforceable oral promise that
Western Cooperative would offer a loan to Anheluk.
Muth made several statements to Anheluk that he interpreted as meaning that
“she saw no problem whatsoever” with his financial statements, and that “indications
for approval looked good.” By Anheluk’s own admissions, however, Muth’s positive
remarks about the likelihood of loan approval did not amount to oral promises.
According to Anheluk, as of October 7, when Muth informed him of her upcoming
move to Liberty National Bank, the loan “wasn’t guaranteed,” and “[i]t wasn’t a done
deal yet,” but they were telling him that “things looked good.” Anheluk was asked
whether, before October 7, “Elaine Muth told you it was a done deal, you had a loan,
no questions asked?,” to which Anheluk responded “[n]o, I’m not telling you that.”
(Appellee’s App. at 561). Anheluk’s argument that Muth made oral promises
guaranteeing him a loan cannot be sustained where his own testimony is that Muth’s
remarks were not binding promises to enter a loan agreement.
As for Beggs’s comment to Anheluk that “[w]e’ll take care of you,” it lacks
essential terms necessary to be an enforceable promise. See Union State Bank v.
Woell, 434 N.W.2d 712, 717 (N.D. 1989). Moreover, even if Beggs’s vague comment
-5-
could amount to a promise, Western Cooperative did “take care of” Anheluk by
offering him an FHA-insured loan on February 4, 1994, which Anheluk rejected
because of conditions Western Cooperative placed on the loan. The outcome in
Anheluk’s state court suit against Muth and Western Cooperative therefore would not
have been more favorable to Anheluk even had Ohlsen acted with due care.
Anheluk also alleges that the district court erred in concluding that he had not
stated an actionable claim in state court against Community First. After rejecting
Western Cooperative’s loan offer, Anheluk applied for a mortgage loan at Community
First, believing that it would be insured by the Federal Housing Administration.
Community First quickly approved Anheluk, and Anheluk secured the loan in June
1994. Because of the delay caused by his inability to secure a loan at Western
Cooperative, Anheluk used much of his Community First loan proceeds to pay debt
rather than to finance his feedlot operation. Anheluk did not have much income when
the Community First loan installment payments came due, and he became delinquent
in making payments within the first two or three months of the loan’s repayment term.
Anheluk believed he had secured an FHA-insured loan from Community First.
About two and a half years into the term of his Community First loan, however,
Anheluk learned that his loan had not been insured by the FHA, because Anheluk was
delinquent in making his early payments. Further investigation with the Department
of Housing and Urban Development (“HUD”) confirmed that Anheluk did not have
an FHA-insured loan because the loan was never endorsed. (Appellant’s App. at 187);
see 24 C.F.R. §§ 200.150-152 (1993) (setting forth procedure for “Insurance
Endorsement”).
Anheluk admits that his delinquency on early loan payments resulted in his
inability to obtain the FHA insurance. He acknowledges that he did not use any of the
proceeds from the loan to finance his feedlot operation, instead using the money to
pay off new debt that accumulated between October 1993, when he learned that Muth
-6-
was leaving Western Cooperative, and June 1994, when he received the loan from
Community First. (Appellee’s App. at 269). The loan, he conceded, “never was
instated as an FHA-insured loan because of those late payments right at the
beginning.” (Id. at 270, 562). This admission is consistent with regulations governing
the insurance program, which required that an application for insurance set forth
information to enable the FHA to determine the eligibility of the mortgagor to carry
and pay the proposed mortgage debt. 24 C.F.R. § 200.143(c)(1) (1993); see also id.
§ 203.33 (setting standards for adequacy of mortgagor’s gross income to qualify for
single family mortgage insurance).
Notwithstanding his admitted delinquency, Anheluk argues that because
Community First failed to gain HUD’s endorsement of the loan before Anheluk
missed a payment, it was Community First’s failure to process the loan, not his
delinquency in repaying the loan, which resulted in the absence of FHA insurance.
The argument seems to be that if the bank had submitted the loan for insurance
consideration at an earlier time, before Anheluk’s inability to make payments on the
loan was manifested, then the FHA would have insured the loan.
We find this argument unavailing. For one thing, Anheluk directs us to no
evidence that Community First was required by the loan contract to gain endorsement
of the loan prior to the start of repayment. Nor, if earlier action was required, has he
submitted proof that the bank failed to present the loan to the federal agency in a
timely manner. But even if these two points were established, there is still no showing
that the timing would have made any material difference. Any effort to obtain FHA
insurance in June 1994 would have required disclosure of Anheluk’s financial
condition and his plans for use of the loan proceeds. This information would have
alerted the FHA to his inability to make the loan payments, even though he had not
yet demonstrated this inability by failing to make the initial payments. Whether the
insurance matter was considered just before or just after the delinquency materialized,
the conclusion would have been the same: Anheluk’s income was inadequate to make
-7-
the periodic payments required by the mortgage. There is thus no reasonable
interpretation of the evidence from which a finder of fact could conclude that
Community First breached its contract with Anheluk. As a consequence, Anheluk has
not shown that the outcome in his state court action against Community First would
have been more favorable but for Ohlsen’s misconduct.
Finally, Anheluk argues that even if he cannot recover damages due to Ohlsen’s
misconduct, he is at least entitled to recovery of the $1706 he paid in legal fees and
the $782 in debt forgiveness. Anheluk’s claim for reimbursement is essentially one
for restitution. Even construing Count II liberally in Anheluk’s favor to include a
claim for restitution, see 5 Charles Alan Wright & Arthur R. Miller, Federal Practice
& Procedure § 1282, at 714 (3d ed. 2004), Anheluk cannot recover fees from Ohlsen.
Where, as here, a plaintiff has no substantive claim for breach of contract, an
actionable claim for restitution must be grounded in showing of unjust enrichment.
1 Dan B. Dobbs, Dobbs Law of Remedies § 4.1(1), at 556 (2d ed. 1993); see also Kerr
v. Charles F. Vatterott & Co., 184 F.3d 938, 944 (8th Cir. 1999). That is so because
in such an instance, “restitutionary ideals form the only substantive basis for the
claim.” 1 Dobbs, supra, § 4.1(1), at 556. North Dakota law, however, bars a claim
for unjust enrichment when there exists an express contract between the parties
regarding the same subject matter as that for which the claim of unjust enrichment is
maintained. Lochthowe v. Estate of Peterson, 692 N.W.2d 120, 124 (N.D. 2005).
Anheluk’s express contract with Ohlsen for legal representation precludes him from
claiming unjust enrichment. Cf. Allied Vision Group, Inc. v. RLI Prof’l Techs., Inc.,
916 F. Supp. 778, 780-81 (N.D. Ill. 1996).
* * *
The judgment of the district court is affirmed.
______________________________
-8-