Opinion
No. 1-763 / 00-1185.
Filed March 27, 2002.
Appeal from the Iowa District Court for Polk County, SCOTT ROSENBERG, Judge.
William and Dolores Ferguson appeal from the district court's ruling granting the defendant law firm's motion for judgment notwithstanding the verdict on the Fergusons' legal malpractice action. AFFIRMED.
Kathryn S. Barnhill of Barnhill Associates, P.C., West Des Moines, for appellants.
Glenn L. Smith, Kevin J. Driscoll and Kerry A. Finley of Finley, Alt, Smith, Scharnberg, Craig, Hilmes Gaffney, P.C., Des Moines, for appellee.
Heard by MAHAN, P.J., and MILLER and HECHT, JJ.
William and Dolores Ferguson appeal from the district court's ruling granting the defendant law firm's motion for judgment notwithstanding the verdict on the Ferguson's legal malpractice action against defendant Neiman, Stone, McCormick Wendl law firm. The Fergusons claim that the alleged extrajudicial admissions made by defendant law firm's attorney provided substantial evidence, without expert testimony, to support a finding of professional negligence. We affirm.
Background Facts and Proceedings. William and Dolores Ferguson owned a furniture polish manufacturing business known as C.W. Parker Company in Des Moines. In December 1988 the Fergusons entered into a contract for the sale of their business to Carmine Piscopo, Joy Piscopo and John Rand. These individuals formed a partnership, Phoenix Associates, to purchase the company's real estate. The individuals also formed Phoenix Distributors to purchase the business assets. A written contract provided Phoenix Distributors was to pay on an installment basis $140,000 for the business assets with the Fergusons having a security interest. A separate real estate contract involved Phoenix Associates' purchase of the business real estate for a total price of $165,000 on an installment basis. The purchasers were also to pay the Fergusons royalties of two percent on the net sales of the polish produced by the business under any formula owned by the Fergusons. The purchasers were also required to pay on an installment basis $110,000 to the Fergusons for a restrictive covenant not to compete with the purchasers. The individual purchasers gave personal guarantees on both contracts. At the time of the sale, the purchasers gave a financial statement indicating their combined net worth of $1,324,000. The business sale contract and the real estate contract had cross-default provisions. The purchase agreement also provided that the Fergusons could repurchase the stock in the business.
The financial statement was not certified.
In July 1990 the purchasers sought to renegotiate the agreement because they could no longer make payments. They offered the company back to the Fergusons, who rejected the offer. The purchasers threatened to file bankruptcy if the contracts were not renegotiated. The purchasers wanted to defer payments on the royalties and defer payments on the covenant not to compete. The Fergusons did not take any action to enforce the personal guarantees at that time.
In August 1991 the Fergusons agreed to defer payment on the restrictive covenant. They also agreed to defer payments on the royalties without obtaining any financial information from the purchasers. They further agreed to subordinate their security rights to a bank on its loan to the purchasers. The purchasers' documentation to the bank indicated that they had an ownership interest in another company. In July 1992 the purchasers again indicated that they were having difficulties making the payments. By October 1992 the purchasers indicated to the Fergusons that they would seek bankruptcy protection unless the Fergusons agreed to further modification of the contracts.
Following this communication, the Fergusons consulted with John Neiman of Neiman, Stone, McCormick Wendl to evaluate the situation and advise them on how to collect their money. Neiman agreed to represent them after indicating that he could not guarantee full recovery under the contracts. Neiman received the 1992 verified financial statements from the purchasers indicating that their net worth was substantially less than their financial statement given in 1988. The 1992 statements indicated no stock ownership in another company, which was revealed by other financial documents.
Neiman initiated a forfeiture proceeding on the real estate contract. He did not pursue a forfeiture of the business asset contract because the Fergusons had subordinated their interest in the business assets and equipment for the bank loan. On the basis of the forfeiture notice of the real estate contract, the Fergusons obtained possession of the building. The purchasers filed for bankruptcy in December 1992.
In early 1993 the Fergusons and the purchasers entered into negotiations regarding the modification of the agreement for royalty payments. The Fergusons claim that the agreement was initially modified to provide for royalty payments on net sales of creams, oils and variations of these formulas but that the final draft, which Neiman did not review, did not include an all-inclusive provision and only referred to formal names of products. The Fergusons signed a modified agreement providing that the amount past due was to be paid by royalty payments of five percent of net sales from these products on a monthly basis and that after such payment, the royalties were reduced to two percent of the net sales. The building for the business now owned by the Fergusons would be leased back to the purchasers. Neiman claims that the Fergusons negotiated this modification without his help.
The purchasers subsequently defaulted on the modified agreement. They failed to make lease payments and were making smaller royalty payments. The purchasers apparently began selling types of polishes they considered not covered by the royalty agreement. In July 1993 the Fergusons gave notice and exercised their stock redemption rights to the business. The purchasers denied they were in default under the modified agreement. Neiman filed a lawsuit for the Fergusons for the amount of the modified contract on the basis of the alleged default. The personal guarantors were also sued. The suit was dismissed without prejudice. The lease was terminated and the Fergusons regained possession of the property and sold the property to another buyer.
Neiman filed a petition for an attachment against the purchasers for back and future rent. The court dismissed the action on the basis that the Fergusons retook possession of the property on the tenth day of the purchasers' right to cure in violation of the terms of the lease. The Fergusons did not appeal the district court's ruling even though Neiman disagreed with it.
The Fergusons then attempted to bring an action in federal district court against the purchasers for breach of contract, fraud and misappropriation. The Fergusons settled and dismissed that action for $10,000 in July 1998.
The Fergusons discharged Neiman in November of 1995. They claim that he failed to conduct an adequate investigation, which would have allowed them to pursue a remedy under the purchasers' personal guarantees or the default provisions of the contract. Neiman claims the Fergusons decided against suing the guarantors individually because of the difficulty of collecting any judgment against them due to the threatened bankruptcy and the fact that the purchasers were from Maine. The Fergusons also claim that Neiman indicated he had made mistakes in representing them and offered to return the money they had paid for his legal representation. They claim Neiman also offered to help them contact his legal malpractice carrier.
On November 4, 1997, the Fergusons filed a professional negligence action against the Neiman law firm indicating that John Neiman was negligent in rendering them legal advice and services on the defaulted contracts. The Fergusons failed to designate an expert witness on the standard of care and causation for a professional negligence action as required by Iowa Code section 668.11 (1997). The district court denied the Neiman law firm's motion for summary judgment.
The case proceeded to a jury trial. The Fergusons presented evidence in support of their claim against Neiman. They did not present expert testimony on the standard of care or the breach thereof. The law firm presented expert testimony indicating that Neiman did not breach any standard of care in his representation of the Fergusons. Neiman personally testified that he did not breach any standard of care in his representation of the Fergusons.
On April 11, 2000, the jury entered a verdict awarding the Fergusons damages in the amount of $375,000. The jury found the Fergusons were fifteen percent at fault and Neiman was eighty-five percent at fault. The district court reduced the verdict to $318,500 to reflect the allocation of fault. On April 21, 2000, the Neiman law firm filed a motion for judgment notwithstanding the verdict and motion for new trial. The Neiman law firm alleged that the evidence was insufficient to support the verdict due to lack of expert testimony on legal malpractice. On June 14, 2000, the district court entered a ruling granting the motion for judgment notwithstanding the verdict. The court found that any statements made by Neiman were insufficient to establish the legal standard of care or its breach. The court further concluded that the record did not warrant a finding of negligence as a matter of law and that expert testimony was necessary. The court therefore concluded that the evidence was legally insufficient to support a finding of professional negligence. The court sustained the motion for judgment notwithstanding the verdict and dismissed the case. The Fergusons appeal.
Standard of Review. We review a district court ruling on a motion for judgment notwithstanding the verdict for correction of errors at law. In re Estate of Bayer, 574 N.W.2d 667, 670 (Iowa 1998). "We view the evidence as the district court did in ruling on the motion, that is, in the light most favorable to the party against whom the motion was directed." Id. A motion for judgment notwithstanding the verdict should be denied if there is substantial evidence to support the claim. Id. Absent such evidence, judgment notwithstanding a verdict may be sustained. Id. "Evidence is substantial when a reasonable mind would accept it as adequate to reach an conclusion." Id. If reasonable minds could differ on the issue, a jury question is engendered. Id. Thus, the question is whether the evidence, when viewed in the light most favorable to the plaintiffs, was sufficient to generate a jury question. Nesler v. Fisher Co., 452 N.W.2d 191, 193 (Iowa 1990).
Law Governing Legal Malpractice. A lawyer has a duty to his client to exercise ordinary care in handling the client's work. Baker v. Beal, 225 N.W.2d 106, 112 (Iowa 1975). The lawyer is obligated to use the knowledge, skill, and ability ordinarily possessed and exercised by members of the legal profession in similar circumstances. Kubik v. Burk, 540 N.W.2d 60, 63-64 (Iowa Ct. App. 1995). In order to establish a prima facie claim of legal malpractice, the plaintiff must introduce substantial evidence that shows: (1) the existence of an attorney-client relationship giving rise to a duty; (2) the attorney, either by an act or failure to act, violated or breached that duty; (3) the attorney's breach of duty proximately caused injury to the client; and (4) the client sustained actual injury, loss, or damages. Schmitz v. Crotty, 528 N.W.2d 112, 115 (Iowa 1995). In this respect, an attorney breaches the duty of care owed to the client when the attorney fails to use such skill, prudence, and diligence as lawyers of ordinary skill and capacity commonly possess and exercise in the performance of the task which is undertaken. Vande Kop v. McGill, 528 N.W.2d 609, 611 (Iowa 1995). Violation of the disciplinary rules constitutes some evidence of negligence. Ruden v. Jenk, 543 N.W.2d 605, 611 (Iowa 1996).
The failure to prove any one of these four elements defeats recovery for the plaintiffs. Ruden v. Jenk, 543 N.W.2d 605, 610 (Iowa 1996).
Ordinarily the issue of whether an attorney has exercised reasonable care is a question of fact. Schmitz, 528 N.W.2d at 115. Generally, expert testimony regarding the standard of care is required. Crookham v. Riley, 584 N.W.2d 258, 266 (Iowa 1998). Expert testimony establishing the standard of care and breach of the standard is required unless proof of those matters is so clear a person who is not an attorney can determine them. Kubik, 540 N.W.2d at 64; Benton v. Nelsen, 502 N.W.2d 288, 290 (Iowa Ct.App. 1993). Iowa Code section 668.11 requires a "party in a professional liability case brought against a licensed professional . . . who intends to call an expert witness . . . [to] certify . . . the expert's name, qualifications and purposes for calling the expert" within a certain time period. Iowa Code § 668.11 (1997). "However, if the facts are so compelling that no conflicting inferences can be drawn from them and rational people cannot differ in response, then whether an attorney has performed the duty owed may be decided as a matter of law by the court." Schmitz, 528 N.W.2d at 115 (citations omitted).
Our supreme court has held that admissions of medical malpractice by a defendant physician can constitute the direct testimony needed to show malpractice. Oswald v. LeGrand, 453 N.W.2d 634, 640 (Iowa 1990). The need for expert testimony is satisfied in situations where the defendant, as an expert, admits to negligence. Id. Following Oswald, we have held that extrajudicial admissions can supply the necessary expert testimony in malpractice cases. Hill v. McCartney, 590 N.W.2d 52, 57 (Iowa Ct. App. 1998). In Hill, we concluded that "in order for an extrajudicial admission to be sufficient it must be an admission of negligence or lack of skill ordinarily required for the performance of the work undertaken." Id. Because legal malpractice also involves a professional's breach of a standard of care, we hold the Oswald and Hill rationale is applicable in legal malpractice cases. With these principles in mind, we turn to the contentions before us.
Plaintiffs' Legal Malpractice Claim. Because we hold extrajudicial statements can constitute the direct expert testimony needed to show malpractice, our question becomes whether Neiman's alleged statements sufficiently admit negligence or a lack of skill ordinarily required for the work at hand. When making this determination, the entire record must be viewed in the light most favorable to the plaintiffs, affording them all reasonable inferences that can be deduced from the factual record. Id.
At the trial, the Fergusons attempted to prove that Neiman was negligent by failing: (1) to immediately sue the purchasers; (2) to investigate the purchasers more thoroughly; (3) to reclaim the plaintiffs' stock in the company; and (4) to properly structure the modification agreement. The Fergusons attempted to demonstrate the applicable standard of care and a breach through the testimony and statements made by Neiman and the clearly recognizable nature of the negligence.
This case was in critical condition when Neiman was retained. We recognize Neiman admitted making some errors in handling this case. He also offered to refund the money plaintiffs paid him for his work. In addition, he initially offered to help the Fergusons contact his legal malpractice carrier. However, after a review of the record, we find none of Neiman's testimony or statements amount to admissions of legal malpractice. Indeed, we find he testified just the opposite. We cannot say from the record before us that negligence was established as a matter of law. As a result, expert testimony was required. The district court did not err in granting Neiman's motion for judgment notwithstanding the verdict.
Neiman testified on cross examination as follows:
Q. Never tried. In your opinion, have you met the standard of care of an ordinary lawyer in Iowa representing a client under similar circumstances as the Fergusons?
A. Yes, I have.
Q. Did you use your skill, your experience, your knowledge and your learning to the best of your ability in representing them?
A. Yes, I did.
AFFIRMED.