Hizey v. Carpenter
| Decision Date | 04 June 1992 |
| Docket Number | No. 58402-8,58402-8 |
| Citation | 830 P.2d 646,119 Wn.2d 251 |
| Court | Washington Supreme Court |
| Parties | , 60 USLW 2765 Gordon N. HIZEY and Jessie M. Hizey, his wife; Estate of Jeri H. Pickering; Baryldean Jo Carlson, a single woman; Guy Fenimore and Doris M. Fenimore, his wife, Appellants, v. Timothy W. CARPENTER and Jane Doe Carpenter, his wife; Scott K. Walker and Jane Doe Walker, his wife; and Ronald C. Hardesty and Jane Doe Hardesty, his wife, d/b/a Carpenter, Walker & Hardesty, Respondents. |
Robert B. Gould, Theodore D. Silva, Seattle, for appellants.
Merrick, Hofstedt & Lindsey, P.S., Nancy K. McCoid, Seattle, for respondents.
In an action for legal malpractice, plaintiffs attempted to apprise the jury of the Code of Professional Responsibility (CPR) and the Rules of Professional Conduct (RPC) through expert testimony and jury instructions. The trial court excluded reference to the CPR and the RPC, through either an expert's mention of them or their use as jury instructions. The jury returned a verdict in favor of the defendants.
Plaintiffs appealed the trial court's ruling disallowing reference to the CPR and RPC, and the Court of Appeals certified the issue to this court for resolution. We accepted certification and transferred the case to this court for disposition. See RCW 2.06.030; RAP 4.3. We now affirm the trial court, holding an expert witness may neither explicitly refer to the CPR or RPC nor may their existence be revealed to the jury via instructions.
Gordon and Jessie Hizey, Baryldean Jo Carlson, Guy and Doris Fenimore, and Jeri Pickering sought legal advice from Timothy Carpenter regarding the sale of an 11.5 acre parcel of commercially zoned property in Mount Vernon, Washington. Plaintiffs had purchased the property in 1968 for $80,000 and, prior to the transaction at issue, had sold two portions of the property to unrelated purchasers and were trying to sell the remainder.
In 1978, plaintiffs borrowed a $249,000 development loan from Mount Baker Bank and made interest-only payments on the loan. By 1983, plaintiffs were behind in interest payments and delinquent in tax payments. Additionally, there were liens against the property as a result of lawsuits against the Fenimores. Mount Baker Bank, which was considering foreclosure, would not make a new loan to plaintiffs alone.
In late 1982 or early 1983, plaintiffs were approached by the Four Star Group--of which James and May Finnegan were members--which wished to purchase the subject property for $950,000. Plaintiffs intended to give the purchasers a $270,000 "credit" against the price for paying off the underlying obligation to Mount Baker Bank. Plaintiffs signed a purchase and sale agreement with the buyers on June 18, 1983. Shortly thereafter, they met with Mount Baker Bank's Lynn Carpenter (wife of the defendant attorney herein), to discuss ways to restructure their loan based on the purchase and sale agreement. The bank would not agree to a straight sale without a substantial cash payment. In addition, the bank considered all members of the Four Star Group less than credit worthy except for the Finnegans, who planned to incorporate as Finnco. Given Mr. Finnegan's financial strength, the bank was willing to consider another loan provided all the original parties remained obligated under it. At this juncture, plaintiffs believed their negotiations with the buyers should be put in writing; they needed a document drafted to replace the original, unacceptable purchase and sale agreement, and they contacted Mr. Carpenter.
Plaintiffs brought the rejected purchase and sale agreement to their meeting with Mr. Carpenter, asking him to prepare a joint venture agreement (JVA) using the terms they gave him. They were anxious to have the documents prepared quickly so the loan would be extended and foreclosure avoided. Mr. Carpenter felt the plaintiffs and Finnegans' group were in "total agreement" on what they wanted, as there was no negotiating or disagreement. He prepared a JVA which did not personally obligate the Finnegans, but obligated their corporation, Finnco; Mr. Carpenter testified he did not inform plaintiffs who was obligated.
As a result of the JVA, a $425,000 loan was approved, which was used to pay off the $249,000 existing loan, back taxes, and liens. Mr. Finnegan then worked on obtaining construction financing to build a hotel. As a prerequisite to obtaining construction financing, it was necessary to have title in the Finnegans' name. To achieve this, plaintiffs asked Mr. Carpenter to draft an agreement converting the JVA to a limited partnership. The limited partnership necessarily converted plaintiffs from creditors to investors or, as Mr. Carpenter admitted, from a debt to an equity situation.
In early 1986, although they had begun building the hotel, the Finnegans/Finnco were nearing bankruptcy. Around July 1986, Mr. Carpenter drafted a proposed furniture, fixtures, and equipment agreement (FF & E) in the hopes of saving the hotel project. The FF & E would have further subordinated plaintiffs' interest in the property, and Mr. Carpenter therefore advised them, for the first time, to seek independent counsel.
The Finnegans ultimately went bankrupt. Plaintiffs filed a claim, but the Finnegans' bankruptcy attorney took the position plaintiffs were owed nothing, since they were investors, not creditors. Plaintiffs eventually settled for $300,000, were awarded $150,000, and netted around $99,000.
Plaintiffs sued Mr. Carpenter in 1987, claiming they were unaware he "represented" both them and the Finnegans/Finnco in drafting documents. At trial, defendants moved to exclude the testimony of Professor David Boerner--one of plaintiffs' expert witnesses--on grounds he was not an expert in real estate law, but would testify to the ethical obligations of an attorney. Such testimony was inadmissible, they argued, because the CPR and RPC do not create standards of civil liability. The trial court ruled Professor Boerner could not "ground" his testimony on the CPR and RPC, i.e., he could not refer to specific rules or testify as to the existence of a codified body of ethics rules for attorneys. In addition, he could not testify the CPR or RPC set the standard of care in an action for legal malpractice. Professor Boerner was, however, allowed to testify that an attorney has ethical duties and to explain what those duties were in this case. As well as expounding on many other ethical aspects of the client-lawyer relationship, Professor Boerner defined a conflict of interest and explained an attorney's obligations when a conflict arises. He claimed there was a conflict of interest in this case and concluded Mr. Carpenter failed to fulfill his obligations in the conflict setting.
The jury returned a verdict in favor of defendant Carpenter, finding he had not been negligent. Plaintiffs moved for judgment notwithstanding the verdict (judgment n.o.v.) or, in the alternative, new trial. Both were denied. This appeal followed.
In addition to the issue certified to this court, plaintiffs claim the trial court erred in refusing to instruct the jury on the standard of care required of a "real estate specialist", and in prohibiting Professor Boerner from testifying about Mr. Carpenter's actions and alleged continued representation of the Finnegans after 1987, when this lawsuit was filed. Plaintiffs also challenge the trial court's instructions on damages and contributory negligence. Finally, plaintiffs contend the trial judge commented on the evidence, prejudicing their case, and erroneously failed to grant their motions for judgment n.o.v. and new trial. We address the issues seriatim.
(1) In a legal malpractice action, may the jury be informed of the Code of Professional Responsibility or the Rules of Professional Conduct either directly through jury instructions or by the testimony of experts who refer to the CPR or RPC?
During the period in which Mr. Carpenter was representing plaintiffs, his actions were governed by the CPR and the RPC. The CPR applied until September 1, 1985, when it was superseded by the RPC. Plaintiffs contend the jury should have been informed of the existence of the CPR and RPC, as well as informed of the relevant provisions of each, either through the expert testimony of Professor David Boerner, or through jury instructions. Plaintiffs' argument, essentially, is that the CPR and RPC conclusively establish ethical standards of care for attorneys, and those ethical standards should also be relevant to the legal standard of care in a malpractice action. A violation of the CPR or RPC, they argue, is evidence of a breach of the attorney's duty and their expert should have been able to refer to specific provisions of the CPR and RPC in testifying as to the standard of care and its breach. Plaintiffs also argue the jury should have been instructed on the relevant portions of the CPR and RPC. The provisions of which plaintiff wanted the jury made aware were CPR DR 4-101(B) (), CPR DR 5-105 (); CPR DR 7-101 (zealous representation); RPC 1.1 (competence); RPC 1.2 (scope of representation); RPC 1.4 (communication); RPC 1.6 (confidentiality); RPC 1.7 (conflicts of interest); and RPC 2.1 (advisor).
Neither the CPR nor the RPC purport to set the standard for civil liability. Quite to the contrary, the preliminary statement to the RPC states:
The rules make no attempt to prescribe either disciplinary procedures or penalties for violation of a rule, nor do they undertake to define standards for civil liability of lawyers for professional conduct.
The CPR contained a similar disclaimer:
The code makes no attempt to prescribe either disciplinary procedures or penalties for violation of a...
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