Green Spring Farms v. Kersten

• Citation: 401 N.W.2d 816,136 Wis.2d 304
• Decision Date: 09 March 1987
• Docket Number: No. 84-1214,84-1214
• Parties: GREEN SPRING FARMS, a partnership, Daniel J. Hartung, and John C. Rasmussen, Plaintiffs-Appellants, v. E. Campion KERSTEN, Defendant-Respondent-Petitioner.
• Court: United States State Supreme Court of Wisconsin

Page 816

401 N.W.2d 816

136 Wis.2d 304

GREEN SPRING FARMS, a partnership, Daniel J. Hartung, and John C. Rasmussen, Plaintiffs-Appellants, v. E. Campion KERSTEN, Defendant-Respondent-Petitioner.

No. 84-1214.

Supreme Court of Wisconsin.

Argued Oct. 28, 1986.

Decided March 9, 1987.

Jan A. Smokowicz argued, for defendant-respondent-petitioner; John M. Moore, Bell, Metzner & Gierhart, S.C., Madison, on brief.

Roy N. Fine, Madison, for plaintiffs-appellants.

CECI, Justice.

This is a review of a published decision of the court of appeals, ^1.. entered on December 12, 1985. The issue on review deals with whether and under what circumstances an attorney should be held liable to a nonclient. We adhere to our decision in Goerke v. Vojvodich, 67 Wis.2d 102, 226 N.W.2d 211 (1975), and hold that, under the facts present here, the defendant attorney may not be held liable to the nonclient plaintiffs since there was no showing of fraud nor of any liability flowing from the attorney to the nonclients. ^2..

This case centers around the sale of a piece of property to the Green Spring Farms partnership, Daniel J. Hartung and John C. Rasmussen. The closing on the transaction took place on October 10, 1980. The property had been the subject of a mortgage foreclosure action in the fall of 1976. Attorney E. Campion Kersten was retained by the Wisconsin River Development Corporation (WRDC) in the fall of 1976 to represent its interests in the foreclosure proceeding which was then pending in the Iowa county circuit court. WRDC's sole shareholder was Willard H. Keland, and defendant dealt primarily, if not exclusively, with Keland in matters relating to his representation of WRDC.

The foreclosure action eventually resulted in a settlement in January, 1980, and a judgment of foreclosure was entered on all the property that was the subject of the proceeding. The settlement agreement provided in part that the 255-acre lot which is the subject of this lawsuit, along with one other parcel of land, would eventually be reconveyed to WRDC. After the settlement agreement had been reached, WRDC, through Kersten and WRDC's broker, George Seymour, began to make efforts to sell the 255-acre tract of farm land.

The facts are largely undisputed, except that the parties disagree about the manner in which Kersten was to be compensated for his representation of WRDC in the foreclosure proceeding and subsequent sale of the property. Kersten has maintained throughout this lawsuit that he was to receive a fixed fee, one that would not fluctuate depending upon the sale price of the property. During his initial representation of WRDC in the foreclosure proceeding, Kersten apparently did agree to a contingency fee arrangement. However, Kersten's counsel stated at oral argument that after WRDC's foreclosure action was completed, Kersten's contingency fee was converted to a fixed-fee mortgage interest in the parcel of property which is the subject of this lawsuit. Counsel conceded, however, that there is nothing in the record which would explicitly confirm that the fee arrangement was modified. Nevertheless, the real estate closing statement does make reference to such a mortgage interest. Plaintiffs have argued, on the other hand, that Kersten charged WRDC for his services strictly on a contingent fee basis, whereby he would get a percentage of the price of any property saved in the foreclosure proceeding and subsequently sold.

In early February, 1980, Ronald D. Offutt, Jr. initially made an offer to purchase the property for the sum of $310,000, which was accepted by WRDC. The closing was to take place on March 17, 1980. A $10,000 earnest money payment was made with the offer to purchase; however, Offutt placed a "stop payment" on the $10,000 check shortly after making the offer.

After the original offer fell through, a decision was nevertheless made to resume negotiations with Offutt. By letter dated February 22, 1980, Kersten agreed to close on Offutt's original offer on June 17, 1980. The letter stated that time was of the essence as to that deadline date. Offutt did not accept this offer, but did submit a counteroffer to WRDC via a letter in July, 1980. This letter containing the new proposal was actually prepared by Kersten at the request of Offutt's attorney. The terms of the proposal, calling for a $300,000 purchase price and a $5,000 earnest money deposit, reflected private negotiations that had been going on between Offutt and Keland. The offer specified a closing date of September 15, 1980, but this time the proposal did not indicate that time was of the essence as to that date. Once again, however, the parties failed to close on the agreed-upon date.

On or about September 10, 1980, after Kersten was informed that Offutt again would not close on the agreed-upon date, he also learned that Keland and Offutt had been conducting further negotiations regarding the sale without his knowledge. ^3.. Specifically, Kersten learned that Keland had persuaded Offutt to advance another $5,000 on the purchase price to him. Kersten wrote to Keland on that date, warning him not to accept any money from Offutt and stating that the advance could jeopardize WRDC's ability to provide clear title to any other prospective purchaser. However, Kersten was unaware at that time that Keland had already accepted the money. Also, Offutt had apparently negotiated directly with Keland regarding an extension of the agreed-upon closing date, although Kersten testified that he was then unaware that Keland assented to any such agreement.

On September 22, shortly after the closing date deadline had passed, Kersten sent a mailgram to Offutt which advised Offutt that the contract was terminated as a result of his failure to close and that WRDC would retain the earnest money as liquidated damages. However, WRDC also offered to renew the proposed sale agreement, provided that certain conditions were met by September 24. Offutt did not accept this offer and instead made a counterproposal, which Keland found unacceptable. Kersten then wrote letters to both the title insurer on September 25 and the real estate broker on October 9, indicating that the dealings with Offutt had been terminated and that WRDC would be free to deal with other potential buyers.

During the February to July, 1980, period, Kersten had been negotiating with plaintiffs regarding the sale of the property, but had suspended the negotiations when the sale agreement with Offutt and the September 15 closing had appeared certain. Plaintiffs were advised of the pending sale. After September 24, 1980, Kersten contacted plaintiff Rasmussen and informed him that the deal with Offutt had fallen through because Offutt had proved unable to close and that Keland wished to reinstitute negotiations with Rasmussen, as well as with plaintiffs Hartung and Green Spring Farms, for purchase of the property. The plaintiffs and Keland successfully completed the negotiations, and on October 10, WRDC and plaintiffs Rasmussen and Hartung closed on the sale of the property. At the closing, attorney Robert Jackson was present on Rasmussen's behalf, and attorney Vernon Molbreak was present on behalf of Green Spring Farms. The plaintiffs paid $292,500 to WRDC and received a deed conveying the property to them.

At the time that Kersten had reinstituted negotiations with plaintiffs, he failed to inform them that he had learned, sometime between September 10 and September 24, that Offutt had obtained a conditional loan commitment which would enable him to purchase the property. Kersten knew of this loan commitment. However, he has maintained that while he hoped that the commitment would lead to Offutt's purchase of the property, he nevertheless did not believe that the sale would materialize. In addition, Kersten did not inform plaintiffs that he knew that Keland and Offutt had been personally dealing with one another or that there had been discussion between Offutt and Keland with regard to an additional $5,000 advance to WRDC. Nor did defendant inform plaintiffs of any potential claim Offutt might bring with respect to the property; however, defendant stated that prior to the closing he had discussions with the title company and with attorney Jackson and that it was their consensus that Offutt had no legal or equitable interest in the land. In any case, plaintiffs Rasmussen and Hartung were fully aware of the fact that Offutt and WRDC had previously signed a purchase contract.

In negotiating the sale to plaintiffs, Kersten dealt primarily with Rasmussen, although Hartung also took part in discussions with defendant. Kersten dealt with attorneys Jackson and Molbreak as well, but he did so only after the basic terms of the sale agreement had been reached. In any event, attorney Jackson did inquire of Kersten as to previous negotiations with Offutt, he was informed of Offutt's ultimate inability to close, and both agreed that given the breakdown of the negotiations, WRDC was free to deal with other prospective purchasers.

After WRDC and plaintiffs closed the transaction, Offutt brought suit against WRDC and Green Spring Farms for specific performance. On December 1, 1981, Iowa county circuit court judge James P. Fiedler ruled that Offutt was entitled to specific performance and that the sale to plaintiffs should be set aside. The plaintiffs commenced this action in Iowa county circuit court on October 6, 1983.

In their complaint, the plaintiffs alleged that defendant made misrepresentations of fact in order to induce a sale of the property and that they relied on these misrepresentations to their detriment. Specifically, plaintiffs alleged in their complaint that they relied on written and oral communications made to them by Kersten regarding both the termination of WRDC's negotiations with Offutt and WRDC's ability and freedom to negotiate with other prospective purchasers. ^4..

Kersten responded to plaintiffs' complaint by...