Opinion
No. 04-0535
Filed September 14, 2005
Appeal from the Iowa District Court for Guthrie County, Don C. Nickerson, Judge.
Jeffery Bump and the Bump Bump Law Firm appeal from the judgment of the district court finding Bump liable for legal malpractice. REVERSED AND REMANDED WITH INSTRUCTIONS.
Michael Figenshaw and Megan M. Althoff Wolfe of Bradshaw, Fowler, Proctor Fairgrave, P.C., Des Moines, for appellant.
Brent B. Green and Bradley C. Obermeier of Duncan, Green, Brown Langeness, P.C., Des Moines, for appellee.
Heard by Vogel, P.J., and Miller and Hecht, JJ.
Jeffery Bump and the Bump Bump Law Firm appeal from the judgment of the district court finding Bump liable for legal malpractice. We reverse and remand with instructions.
I. Background Facts and Proceedings.
William Barringer and his parents were co-owners of several certificates of deposit (CDs). Barringer's mother converted seven of the instruments by striking his name from the certificates in 1987, a few weeks before Barringer's father's death. She converted in the same manner two other deposits that were jointly owned with Barringer in 1990. Barringer claims he first learned of the conversions after his mother's death on May 31, 1999. He then retained Jeffrey Bump, an attorney in the Bump Law Firm, to handle a claim for damages against the executors of the decedent's estate. Bump filed a petition in October of 1999 on behalf of Barringer seeking judgment in the principal amount of the CDs plus interest from the time of the conversions.
The terms of each CD stated:
If more than one depositor is named above and unless specifically indicated therein to the contrary, this certificate and the deposit evidenced hereby, shall belong to said depositors as joint tenants with right of survivorship (and not as tenants in common).
Barringer also named as a defendant his daughter, Christine, who was a beneficiary of the decedent's testamentary trust.
a.) Barringer's conversion action against the estate.
The conversion action filed on Barringer's behalf in 1999 was filed more than ten years after some of the CDs were converted by the decedent, and more than five years after all of the conversions occurred. There was evidence tending to prove Barringer was on inquiry notice of the conversion more than five years before the suit was filed. Namely, Barringer had, until 1987, reported income from some of the jointly owned CDs on his tax returns. However, after 1987 he no longer reported income from that source. Furthermore, Barringer also was a beneficiary of his father's estate, and the probate inventory filed in that estate in 1987 indicated Barringer was not then a co-owner of the CDs. Barringer nonetheless claimed he had no notice of the conversions because he continued thereafter to receive from his mother distributions which he believed were derived from interest earned on the deposits. Under these circumstances, Bump concluded Barringer would be required to rely upon the discovery rule to avoid the estate's defense based on the five-year statute of limitations applicable to conversion actions.
Barringer also claimed he was unaware of the conversions because he was somewhat inattentive to his financial affairs and his mother was active in the management of his financial affairs.
See Iowa Code § 614.1(4) (1999).
Judge Dale B. Hagen presided over the trial of Barringer's conversion action against the estate. The court concluded Barringer's suit was timely commenced because it was filed within five years after Barringer discovered his claim. The court awarded Barringer $123,000.00 representing the principal value of the converted CDs, but declined to award damages for the plaintiff's loss of pre-filing interest income. The claim against the estate for such interest damages was rejected by the court on the ground the record contained insufficient evidence of the value of the CDs from which to calculate the interest that would have accumulated prior to commencement of the action but for the conversions. The estate appealed the ruling, and on Barringer's insistence, Bump filed a cross-appeal challenging the district court's failure to award pre-filing interest. A panel of this court affirmed the district court's decision. b.) Barringer's professional negligence action.
Barringer asserted on appeal that the district court should have computed and awarded pre-filing interest as an element of consequential damage at the rates shown on the face of the instruments at the time of issuance, or in a fair and reasonable amount extrapolated from those initial interest rates. In the alternative, Barringer asserted on appeal that the district court should have awarded interest at the rate of 5% on the total amount converted from the dates of conversion pursuant to Iowa Code § 535.2.
The decision on appeal made no express reference to or disposition of the cross-appeal.
Barringer subsequently filed suit against Bump and his law firm asserting Bump negligently failed to seek pre-filing interest in the action against the estate. Barringer contended he was entitled to recover such interest, and that the applicable standard of care required Bump to present evidence from which the district court could have calculated and awarded the amount of interest accrued on the CDs from the dates of the conversions to the date suit was filed in 1999.
Bump denied that he breached a duty owed to Barringer. Bump contended the assertion of a claim for pre-filing interest would have been inconsistent with Barringer's own testimony bearing upon the nature of his ownership interest in the CDs. In particular, Bump testified that Barringer admitted his parents were entitled to use the interest generated from the CDs during their lifetimes even though they had agreed to leave the principal untouched for Barringer to control after their deaths. Bump further claimed Barringer's confirmation of this ownership arrangement with his parents created strategic and ethical bases supporting his decision not to zealously pursue a claim for pre-filing interest in the action against the estate. Bump claimed Barringer approved, or at least did not object, when informed of Bump's decision that a claim for pre-filing interest should not be advanced against the estate during trial. Similarly, Bump claimed Barringer did not object when the claim for pre-filing interest was not included in the post-trial proposed findings of fact and conclusions of law prepared and submitted to the court by Bump on Barringer's behalf. Bump testified Barringer first insisted upon the submission of the pre-filing interest claim after Judge Hagen decided Barringer had not proved entitlement to such damages and only after the estate had given notice of its intent to appeal Judge Hagen's decision. Finally, Bump asserted that even if Barringer was entitled to recover pre-filing interest in the action against the estate, it was not in Barringer's economic interest to do so because any recovery of interest obtained by Barringer from the estate (1) would be paid out of his mother's residuary estate in which he already had a sixty-five percent stake, and (2) would also become subject to Bump's contingent fee.
The evidence established that the interest was paid monthly on the deposits.
Bump posited that, given the evidence of Barringer's parents' rights to use the interest on the CDs during their lifetimes, any claim by Barringer for the loss of pre-filing interest would clearly have been perceived by the court as an attempt to over-reach. Furthermore, Bump asserted the claim for pre-filing interest was ill-advised because it could have shifted greater focus on those facts tending to prove Barringer knew or should have known of the conversions more than five years before the suit was filed against the estate. Namely, Barringer had admitted he received and reported on his tax return interest on the CDs prior to the conversions. Although he subsequently received distributions from his mother that he believed were derived from interest earned on the CDs, Barringer apparently did not report them as income on his tax returns.
Bump testified to his belief that a claim for pre-filing interest asserted under these facts would have been meritless because Barringer had testified he was not entitled to interest generated by the deposits during his parents' lifetimes, and alternatively, because Barringer had admitted he periodically received distributions from his mother which he believed were derived from such interest. In Bump's words, "asking the Judge to award something that my client said he received, or conversely, that my client testified that he wasn't entitled to, would have been overreaching and would have made me look like an idiot." Bump's brief on appeal asserts "an attorney is not obliged to advance a position which he does not believe can be honorably advanced." See Iowa Code of Prof'l Responsibility DR 7-102(A)(2) (prohibiting a lawyer from advancing a claim or defense that is unwarranted under existing law unless the claim or defense can be supported by a good faith argument for an extension, modification, or reversal of existing law).
The residuary of the decedent's estate was placed in a trust. Barringer was the beneficiary of 65% of the trust, and his daughter was the beneficiary of the remaining 35%. Because Barringer stood to receive 65% of the residuary of the estate via the decedent's testamentary trust, Bump argued any judgment in favor of Barringer against the estate for pre-filing interest would diminish the residuary estate to which Barringer was already entitled.
Barringer, however, disputed Bump's assertion that there was a conscious decision by Bump to forego a claim for pre-filing interest. In particular, Barringer noted a claim for pre-filing interest was asserted by Bump in both the petition and the cross-appeal.
Bump counters this argument by claiming he pled the pre-filing interest element of damages before Barringer disclosed his mother's exclusive right to the interest on the CDs. And as noted above, Bump maintains he filed the cross-appeal asserting the pre-filing interest claim only at Barringer's insistence after the estate appealed.
The district court found Bump failed to meet the applicable standard of care by failing to prove Barringer's claim against the estate for pre-filing interest. The district court concluded the evidence proved Barringer was entitled to the interest on the CDs, and stated:
Based upon Judge Hagen's testimony, it appears to this Court that had the Defendants introduced evidence at trial regarding the pre-filing interest element of damages in the underlying matter, said damages would have been awarded subject to a set-off for any gifts received by the Plaintiff which came from interest on the converted CDs.
The district court also concluded the interest would have been collectible from the assets available in Barringer's mother's estate and rejected Bump's assertion that it was in Barringer's economic interest to forego his claim for pre-filing interest. The district court awarded judgment in favor of Barringer and against Bump and his law firm in the amount of $86,040.44, representing the total pre-filing interest computed by Barringer's expert from the dates of the conversions to the date of filing less the amounts of payments received by Barringer from his mother during the same time interval. c. Issues raised in this appeal.
The district court found the deposits generated interest in the total amount of $123,000 from the dates of conversion to the date Barringer commenced suit against the decedent's executors. The court then subtracted from that total the sum of $36,875.88, which it characterized as "the most [Barringer] could have received in the form of gifts" or "the total possible set-off," and entered judgment against Bump and the Bump Law Firm for $86,040.44.
Bump claims the record does not contain substantial evidence of a breach of duty owed to Barringer. Bump contends he breached no duty as a matter of law in connection with the claim for pre-filing interest because (1) Barringer was informed of and assented to the trial strategy that forsook the claim, (2) Barringer's expert's testimony was so flawed as to render it insubstantial, and (3) the decision to forego the claim for pre-filing interest was a matter of trial strategy. Bump further contends Barringer failed as a matter of law to prove any breach of duty proximately caused actual injury by establishing (1) the claim for pre-filing interest had a likelihood of success, (2) a judgment for pre-filing interest would have been collectible, and (3) it was in Barringer's financial best interest as a beneficiary of the decedent's testamentary trust to obtain a judgment against the estate for pre-filing interest notwithstanding he would have owed an attorney fee on such recovery.
II. Scope and Standard of Review.
We review the ruling of the district court for correction of errors at law. Baker v. Beal, 225 N.W.2d 106, 109 (Iowa 1975). The ruling has the effect of a special verdict and will not be disturbed if supported by substantial evidence. Id. Where the district court's findings may reasonably be inferred from the record on appeal, those findings are supported by substantial evidence. Briggs Transp. Co. v. Starr Sales Co., 262 N.W.2d 805, 808 (Iowa 1978). In evaluating the sufficiency of evidence, we view the record in the light most favorable to the district court's ruling. Id. III. Discussion.
In order to prevail on his professional negligence claim, Barringer had the burden to prove the following elements of a prima facie case: (1) the existence of an attorney-client relationship giving rise to a duty; (2) the breach of that duty by an act or a failure to act by the attorney; and (3) the breach of duty was a proximate cause of the client's actual injury, loss, or damage. Trobaugh v. Sondag, 668 N.W.2d 577, 581 (Iowa 2003). Additionally, it was Barringer's burden to prove the underlying claim would have been collectible. Whiteacker v. State, 382 N.W.2d 112, 115 (Iowa 1986). If Barringer failed to prove any of these elements, he cannot prevail. Id.
The existence of Bump and Barringer's attorney-client relationship is undisputed. Bump had a duty to represent Barringer's interests zealously within the bounds of law and with the level of competence required by our Code of Professional Responsibility. See Iowa Code of Prof'l Responsibility 32, Canons 6, 7. However, Bump is also an officer of the court, and therefore owes a concomitant duty to refrain from bringing meritless claims, unsupported by existing law. Iowa Code of Prof'l Responsibility DR 7-102(A); Cohen v. Iowa Dist. Court, 508 N.W.2d 78, 82 (Iowa Ct.App. 1993).
The briefs submitted on appeal focus upon the question of whether the district court erred in concluding Bump's acts or omissions constituted a breach of his duty of care to Barringer. To resolve this question we must first decide whether Barringer was legally entitled to the pre-filing interest on the converted CDs. If Barringer was not legally entitled to recover pre-filing interest, Bump breached no duty in failing to pursue an untenable claim. If, on the other hand, Barringer was legally entitled to recover such interest, we must then assess Bump's claim that his failure to present additional evidence of the value of pre-filing interest did not, as a matter of law, result in the breach of the applicable standard of care or proximately cause damage to Barringer.
a.) Interest accrued prior to Barringer's mother's death.
Under most factual circumstances, pre-filing interest is a proper component of damages in an action for conversion. Brenton Nat. Bank of Des Moines v. Ross, 492 N.W.2d 441, 442 (Iowa Ct.App. 1992). A conversion action often involves a plaintiff seeking damages for the conversion of personal property solely owned by the plaintiff. Here, however, Barringer held the converted CDs as a co-owner with his parents. In defending the present action, Bump adduced uncontroverted evidence of an agreement allocating the ownership interests of Barringer and his parents in the CDs. That agreement gave Barringer's parents the exclusive right to use the interest earned on the CDs during their lifetimes. Barringer's own testimony during the trial of his suit against the estate established he had no right to control or receive the interest accruing on the CDs during his parents' lifetimes; and that his mother could spend or give away any or all of the interest generated by the CDs during her lifetime.
The district court, however, appears to have failed to consider the effect of Barringer's mother's exclusive right to receive and control during her lifetime any interest earned on the CDs on Barringer's claim of entitlement to the pre-filing interest. Although the CDs on their face describe the owners of the CDs as joint tenants with right of survivorship, competent evidence of a subsequent oral agreement between the parties is effective in altering the respective ownership rights of the various co-owners. See Whalen v. Connelly, 545 N.W.2d 284, 290 (Iowa 1996) (stating that parol evidence is admissible to prove a subsequent modification of a written contract, even where the written contract requires all modifications to be in writing). Although joint tenants hold an undivided interest in the item owned, the subsequent agreement between the Barringers allocating among them the ownership rights in the principal of the deposits and interest generated by them resulted in a severance of the joint tenancy in the deposits at least with regard to the interest earned on them during the lives of Barringer's parents. See In re Baker's Estate, 247 Iowa 1380, 1387, 78 N.W.2d 863, 867 (1956) (noting that a joint tenancy may be severed either by mutual agreement or by unilateral conveyance of a joint tenant's interest).
The district court concluded, based on Judge Hagen's testimony, that had "the Defendants introduced evidence at trial regarding the pre-filing interest element of damages in the underlying matter, said damages would have been awarded . . ." This conclusion seems irreconcilable with Judge Hagen's affidavit which refers to the ownership interests of the co-owners of the deposits and states:
Based upon the trial testimony, it would have been inconsistent with the facts presented at trial for me to have entered an award of accumulated interest on the converted CDs even if evidence of accumulated interest on those CDs had been introduced at trial.
We can think of no more reliable evidence of a subsequent modification and severance of the joint tenancy ownership of the CDs in question than the admission by Barringer in the underlying action that he had no right to the interest generated on the CDs during his parents' lifetimes.
We conclude the uncontroverted agreement between Barringer and his parents eliminated as a matter of law Barringer's claim of entitlement to any interest accrued on the CDs during his parents' lifetimes. In re Estate of Thomann, 649 N.W.2d 1, 7 (Iowa 2002). Although the principal value of the deposits was converted in 1987 and in 1990, we conclude Barringer had no claim as a matter of law to interest earned on the converted funds prior to his mother's death on May 31, 1999. Barringer's confirmation of the agreement's existence during both his pre-trial conversations with Bump and in his testimony during trial of the action against his mother's executors relieved Bump of any duty to pursue a recovery of any pre-filing interest that would have been earned on the converted deposits prior to the death of Barringer's mother. Accordingly, the district court erred in awarding judgment in Barringer's favor for pre-filing interest for any period prior to May 31, 1999.
b.) Claim for pre-filing interest from 5/31/99 to date of filing.
We next consider whether the district court erred in awarding judgment in favor of Barringer as a consequence of Bump's failure to prove and recover pre-filing interest for the period between the date of Mrs. Barringer's death and October 22, 1999, the date the underlying action was commenced. We have carefully reviewed each of Bump's assignments of error as they pertain to the sufficiency of the evidence to sustain a judgment against Bump and the Bump Law Firm for failure to prove and recover pre-filing interest for this limited period. Contrary to the appellants' assertions, we conclude the record, when viewed in the light most favorable to appellee, contains substantial evidence supporting the district court's findings that a duty was breached and actual injury resulted during such limited period.
IV. Conclusion.
We reverse only that part of the district court's ruling pertaining to damages. We do not disturb the district court's ruling as it pertains to liability, and we therefore remand this case for entry of further findings of fact, conclusions of law, and judgment consistent with this opinion. We tax two-thirds of the costs of this appeal to Barringer and one-third to appellants.