United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT March 29, 2006
Charles R. Fulbruge III
Clerk
No. 05-30583
AMERICAN RELIABLE INSURANCE CO.,
Plaintiff-Appellant,
versus
BORIS NAVRATIL; NAVRATIL, HARDY,
BOURGEOIS LLP; CONTINENTAL CASUALTY CO.,
Defendants-Appellees.
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Appeal from the United States District Court
for the Western District of Louisiana
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Before JONES, Chief Judge, WIENER and PRADO, Circuit Judges.
WIENER, Circuit Judge:
Plaintiff-Appellant American Reliable Insurance Company
(“ARIC”) appeals the district court’s summary judgment dismissing
ARIC’s malpractice claim against Defendant-Appellee, Boris
Navratil, a lawyer whom ARIC had retained to defend it and its
insured against a third-party’s lawsuit in state court. As the
state law question on which the instant case turns is neither
covered by statute nor yet addressed by the highest court of
Louisiana, the district court had to make an “Erie guess,”1 as must
1
See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
we, de novo, on appeal.2 We disagree with the district court’s
determination that Louisiana case law mandates dismissal of ARIC’s
claim on grounds of equitable estoppel. We therefore reverse the
district court’s summary judgment and remand for further consistent
proceedings.
I. FACTS AND PROCEEDINGS
ARIC retained Navratil to defend it and its insured, Eli
Prudhomme, in a state court lawsuit. The action proceeded through
a full merits trial that resulted in a jury verdict for the
plaintiff, with damages assessed against Prudhomme and ARIC in
solido for the policy limits of $25,000, and additional damages
against Prudhomme only for $420,198.30. Following the verdict,
Navratil wrote to ARIC, expressing his professional opinion that
there were several legal arguments to be made on appeal that might
reduce the quantum of the judgment or change the allocation of
damages, and recommending an appeal. Navratil acknowledged in his
letter that, given ARIC’s $25,000 policy limit and the unlikelihood
of a complete reversal, an appeal probably would not directly
benefit ARIC. Navratil went on to advise ARIC that it had a duty
under state law to appeal the adverse judgment against its insured,
even if ARIC would not directly benefit from an appeal. Even
2
See Salve Regina College v. Russell, 499 U.S. 225, 239-40
(1991).
2
before the verdict became a final judgment, however, ARIC
terminated Navratil’s representation.
Shortly thereafter, ARIC settled the state court case with the
plaintiff for $550,000, an amount that was greater than the jury
award but apparently less than the total anticipated judgment
against Prudhomme.3 ARIC then filed this diversity action against
Navratil in the district court, alleging malpractice in his
handling of the Prudhomme case. Both sides filed motions for
summary judgment.
The district court granted Navratil’s motion and dismissed
ARIC’s malpractice claim with prejudice. In the absence of a
Louisiana Supreme Court case on point or any state statutory
authority, the district court expressly relied on Gross v. Pieno,4
a decision of one among Louisiana’s five intermediate courts of
appeal, to hold as a matter of state law that ARIC’s failure to
appeal the jury verdict before voluntarily settling the state court
case barred ARIC’s suit against Navratil for malpractice in his
handling of that case. ARIC appeals the district court’s summary
judgment.
3
Prudhomme’s interest in the matter was severed by an
assignment, release, and consent agreement with ARIC, which he
signed in exchange for ARIC’s assumption of liability for the
full amount of the jury award.
4
04-820 (La. App. 5 Cir. 12/28/04); 892 So.2d 662.
3
II. STANDARD OF REVIEW
We review de novo a district court’s grant of summary
judgment.5 We also review de novo a district court’s determination
of state law, granting no deference to its interpretation.6
III. ANALYSIS
The district court, sitting in diversity, made an “Erie guess”
in its effort to determine the applicable state law. In the
absence of any controlling state statute or relevant decision of
the Supreme Court of Louisiana, the district court appropriately
turned to rulings of state appeal courts, here relying almost
exclusively on the decision of one in Pieno.7 We view as overly
broad, however, the district court’s reading of the Pieno decision
as establishing an unconditional per se rule in Louisiana to the
effect that a client’s failure to pursue an appeal from an adverse
5
Armstrong v. City of Dallas, 997 F.2d 62, 65 (5th Cir.
1993).
6
Salve Regina College, 499 U.S. at 239-40.
7
See Terrebonne Parish Sch. Bd. v. Columbia Gulf
Transmission Co., 290 F.3d 303, 317 (5th Cir. 2002) (decisions of
the intermediate state courts are “not to be disregarded by a
federal court unless it is convinced by other persuasive data
that the highest court of the state would decide otherwise”). We
note that the Louisiana Supreme Court declined review in Pieno,
as well as in the Murphy case on which Pieno relied. Gross v.
Pieno, 2005-0218 (La. 04/22/05); 899 So.2d 582 (unpublished)
(denying writ); Murphy v. Gilsbar, Inc., 2002-0205 (La. App. 1
Cir. 12/31/02); 834 So.2d 669, writ denied, 2003-0676 (La.
05/30/03); 845 So.2d 1057.
4
judgment absolutely bars such a client from bringing a malpractice
suit against the attorney. We are instead convinced that were the
Supreme Court of Louisiana to decide this as a case of first
impression today, it would distinguish Pieno and hold that ARIC’s
settlement of the underlying case did not have the preclusive
effect of barring the client from bringing an independent action
for legal malpractice. Stated differently, we do not believe that
the highest court of the State would establish a per se bar that
would ipso facto block the bringing of such a suit in every claim
of legal malpractice.
A. Pieno Does Not Require Dismissal In This Case
In Pieno, the attorney for the plaintiffs in the underlying
lawsuit failed to take any steps in the prosecution of that action
for three years, after which the defendants successfully filed a
motion for summary judgment resulting in dismissal of the case on
grounds of abandonment. Shortly thereafter, the plaintiffs’
attorney filed a motion to set aside the dismissal and requested a
hearing, which request was granted. While the hearing was pending,
the plaintiffs’ attorney engaged in settlement negotiations with
the defendants, but before he could proceed further he was fired by
the plaintiffs. They proceeded to settle their lawsuit directly
with the defendants, then sued their former attorney for
malpractice. In defending the malpractice claim, the lawyer argued
5
that, because his former clients had settled the matter without
allowing the hearing to take place on the issue of abandonment,
they were equitably estopped from pursuing a malpractice claim
against him. The state appeal court agreed, stating that “the
plaintiffs, by failing to participate in the hearing on the
abandonment motion, precluded the opportunity to litigate the
abandonment issue.”8 The appeal court reasoned that the trial
court had been denied the opportunity to consider the fired
attorney’s legal explanation for not taking action on the case, or
to consider whether the defendants, who were willing to settle
while reconsideration was pending, might have waived the issue of
abandonment.9
This case is readily distinguished from Pieno. Unlike the
attorney in Pieno, who was deprived of any opportunity to absolve
himself of fault on the liminal issue of abandonment, Navratil
proceeded all the way through a merits jury trial to a resounding
defeat and a large jury award against his clients. The proceedings
in Pieno were cut short by the clients’ settlement before the pre-
trial hearing on abandonment could even be held, thus making it
impossible for any court to determine whether the attorney had in
8
892 So.2d at 665.
9
Id. at 665-66.
6
fact caused any harm to his clients. In stark contrast, any
professional malpractice Navratil might have committed in his
handling of Prudhomme’s case all the way to verdict can be
determined with certainty from the record of the extensive state
court proceedings. Undoubtedly, that record is much more fully
developed and extensive than was the record in Pieno, which could
have contained nothing substantially more than the three-year-old
original petition and some preliminary pleadings filed shortly
before summary judgment.
Navratil argues that this case is indistinguishable from Pieno
because there is no substantive difference between summary
judgments and judgments rendered after trial; both have the effect
of adjudicating the rights of the parties, and if not appealed,
become final, definitive, and binding judgments. The logic of this
argument is flawed and misses the point. The appeal court in Pieno
recognized that the proceedings in the clients’ case had not
definitively ended, whether by summary judgment or trial verdict,
when the clients settled. At the heart of the decision in Pieno
was the state appeal court’s view that it was the clients’
settlement that terminated the litigation; it was not the adverse
summary judgment, which might have been set aside following the
hearing that would have taken place but for the clients’
7
settlement.10 The issue of abandonment was still before the state
trial court and the proceedings were still open. Notably, there
was as yet no merits judgment. Contrary to the suggestion of
Navratil’s argument, there is no indication that the Pieno court
would have applied equitable estoppel to bar a malpractice action
against the attorney if the judgment in that case had been final.
The state appellate court in Pieno was most concerned with the
fact that there had been no hearing at all on the issue of
abandonment; that because of the client’s independent settlement,
the attorney was denied the opportunity to remedy any deficiency in
his representation of the client, which in fact might not have been
deficient at all. As the Pieno trial court remarked, “we’ll never
know because the Grosses decided to take a check rather than attend
the [h]earing.”11 Not so here: Navratil’s entire performance as
defense counsel for ARIC and Prudhomme can be evaluated from the
record of the state trial court proceedings, which were not cut
short by a premature settlement with the opposing party but went
all the way to a final judgment on a jury verdict. There is a
palpable difference between what was important in Pieno and what
10
See id. at 664-65 (“the original judgment of abandonment
was set for a hearing. ... [P]laintiffs chose not to move forward
with that hearing. ... [I]t was this settlement that terminated
the litigation in the underlying suit.”).
11
Id. at 665.
8
happened in this case. We conclude that the district court read
Pieno too broadly in extending its holding to this case.12
B. Equitable Estoppel
A federal court sitting in diversity must distinguish
intermediate state appellate court precedent, especially when (as
here) it is sparse, before predicting how the state’s highest court
would rule if presented with the same facts for the first time.13
As our review of the district court’s interpretation of state law
is de novo, our contrary Erie-guess will supplant that of the
district court.14 We do not believe that the Supreme Court of
Louisiana, or even the intermediate appellate court that decided
Pieno, would apply equitable estoppel under the instant facts. As
we are not convinced that the Supreme Court of Louisiana would
12
We note that Soderquist v. Kramer, 595 So.2d 825 (La.
App. 2 Cir. 1992), on which ARIC relies, is equally
distinguishable: That case involved a settlement agreement signed
at the attorney’s urging which purported to release the attorney
from any claim of malpractice; and the appeal court’s decision
was grounded in the Louisiana Rules of Professional Conduct.
Soderquist has no bearing on this case.
13
See Hall v. White, Getgey, Meyer & Co., LPA, 347 F.3d
576, 586-87 (5th Cir. 2003) (rejecting party’s reliance on state
court decision that was distinguishable from the facts at issue,
predicting that the state Supreme Court would not apply it to the
facts presented).
14
See Salve Regina College, 499 U.S. at 239-40 (emphasizing
that appellate review of a district court’s determination of
state law is de novo and is without any deference to the district
court).
9
require a client in ARIC’s shoes to appeal an adverse judgment in
a fully litigated case as a suspensive condition (condition
precedent) to suing the attorney who handled and tried that very
case, all the way to verdict, we reverse the summary judgment
dismissal of ARIC’s malpractice suit against Navratil.
Although as a general principle, a client has a duty to
mitigate damages caused by its attorney’s malpractice, such a duty
cannot require the client to undertake measures that are
unreasonable, impractical, or disproportionately expensive
considering all of the circumstances.15 ARIC rightly notes that
interpreting Pieno to require a client to take and pursue an appeal
as a prerequisite to suing its attorney for malpractice would be
tantamount to forcing the client to file and pursue such an appeal
all the way to the United States Supreme Court, at great expense to
both the client and the courts, regardless of the merits of the
appeal. Moreover, such an immutable rule could cause the client to
miss a favorable but fleeting opportunity to make a financially
favorable settlement; and settlement may often be a better method
of damage mitigation than is appeal. We cannot imagine that
Louisiana’s highest court would impose such a rigid, blanket
requirement; neither do we read that state’s sparse appellate
15
See 3 Ronald E. Mallen & Jeffrey M. Smith, Legal
Malpractice § 20.21 (2006).
10
jurisprudence as authority, much less a mandate, for federal courts
sitting in diversity to do so.
IV. CONCLUSION
In summary, ARIC was forced to decide between appealing the
adverse judgment in the hope of reducing or eliminating the award
—— a seemingly risky and speculative course —— and effectuating a
reasonable settlement with the plaintiff while the proverbial iron
was hot. We are aware of no Louisiana law that elevates the former
course of pursuing mitigation over the latter. In the absence of
any direct guidance on this issue from the Supreme Court of
Louisiana (and little if any from the State’s intermediate courts
of appeal), we hold that ARIC’s decision not to pursue an appeal
under these circumstances does not equitably estop it from
prosecuting its malpractice action against Navratil. We therefore
reverse the district court’s summary judgment of dismissal of
ARIC’s action and remand this case to that court for further
proceedings consistent with this opinion. In so doing, we neither
express nor imply any view on the merits of ARIC’s legal
malpractice claim against Navratil.
REVERSED and REMANDED.
11