Bank IV Wichita, Nat. Ass'n v. Arn, Mullins, Unruh, Kuhn & Wilson

• Decision Date: 28 February 1992
• Docket Number: No. 66635,66635
• Citation: 827 P.2d 758,250 Kan. 490
• Parties: , 139 L.R.R.M. (BNA) 2920, 125 Lab.Cas. P 10,726 BANK IV WICHITA, NATIONAL ASSOCIATION, et al., Appellants, v. ARN, MULLINS, UNRUH, KUHN & WILSON, a General Partnership, et al., Appellees.
• Court: Kansas Supreme Court

Page 758

827 P.2d 758

250 Kan. 490, 139 L.R.R.M. (BNA) 2920,

125 Lab.Cas. P 10,726

BANK IV WICHITA, NATIONAL ASSOCIATION, et al., Appellants, v. ARN, MULLINS, UNRUH, KUHN & WILSON, a General Partnership et al., Appellees.

No. 66635.

Supreme Court of Kansas.

Feb. 28, 1992.

Syllabus by the Court

1. Public policy considerations preclude the assignment of legal malpractice claims regardless of whether the claims sound in contract or tort because such claims are personal to the client.

2. Under the facts of the case at bar, the same policy reasons which prevent the assignment of legal malpractice claims also prevent (1) acquiring such claims by assignment through a foreclosure action and (2) transferring such claims by succession and successor employer liability under the National Labor Relations Act, 29 U.S.C. § 151 et seq. (1988).

3. Under the facts of the case at bar, the policy considerations prohibiting the assignment of legal malpractice claims also prohibit the subrogation of a debtor's legal malpractice claim against the debtor's attorney by a creditor where the interests of the debtor and the creditor have the potential to diverge.

4. Before a nonclient third-party lender may state a legal malpractice claim against a borrower's attorney, a showing must be made that the attorney directly advised the lender or that the attorney intended or expected the lender to rely on the attorney for legal services concerning the matter in issue.

James D. Oliver of Foulston & Siefkin, Wichita, argued the cause, and Mikel L. Stout and Rebekah S. Whiteford, of the same firm, were with him on the briefs, for appellants.

Alan R. Pfaff of Kahrs, Nelson, Fanning, Hite & Kellogg, Wichita, argued the cause, and Darrell D. Kellogg, of the same firm, was with him on the brief, for appellees.

SIX, Justice:

This case involves a nonclient, third-party legal malpractice claim arising from the triangular relationship of borrower, lender, and counsel for the borrower.

The malpractice claim is advanced by Bank IV Wichita, National Association (Bank IV) and Christopher Steel, Inc., (Christopher II) against a law firm, Arn, Mullins, Unruh, Kuhn & Wilson (Arn, Mullins), and two partners of the firm, Milo M. Unruh and Stuart Collier. Bank IV was a major creditor of George C. Christopher & Son, Inc. (Christopher I). Christopher I was a client of Arn, Mullins. Christopher II, a former wholly owned subsidiary of Bank IV, was formed to take possession of the assets of Christopher I and operate the business after Bank IV foreclosed on Christopher I.

The interests of Bank IV and Christopher II merge for the instant appeal. The interests of Arn, Mullins and the two partner defendants, Unruh and Collier, also merge. We shall refer to the two plaintiffs as Bank IV and to the three defendants as Arn, Mullins.

The case comes to us on appeal from a summary judgment order in favor of Arn, Mullins.

Our jurisdiction is based on a transfer from the Court of Appeals under K.S.A. 20-3018(c).

We hold that the legal malpractice claim of Christopher I against Arn, Mullins is not assignable to Bank IV. Bank IV does not acquire the malpractice claim by assignment, foreclosure, subrogation, or successor status. Under the facts of the case at bar, no duty is owing from Arn, Mullins to Bank IV, a nonclient. The trial court is affirmed.

Facts

Christopher I was engaged in the steel fabrication business. Arn, Mullins had served as Christopher I's counsel for many years. Unruh and Collier, partners at Arn, Mullins, were responsible for handling the legal matters giving rise to the instant lawsuit. Unruh was a member of the board of directors and also corporate secretary of Christopher I.

Arn, Mullins' representation of Christopher I included labor negotiations with the union representing the corporation's employees. The law firm was involved in negotiating a collective bargaining agreement between Christopher I and the union. A new contract was negotiated in 1985 without the participation of Arn, Mullins. The 1985 contract, which was effective April 1, 1985, and would have expired March 31, 1988, contained a reopener clause allowing the renegotiation of wages to become effective at the end of one year (April 1, 1986). The 1985 contract further provided that upon failure to reach an agreement on renegotiated wages, either party may give notice of intent to terminate the agreement effective April 1, 1986.

In 1986, Christopher I, having experienced financial difficulties, consulted Arn, Mullins concerning the 1985 contract. At Christopher I's request, Arn, Mullins drafted an interim agreement, extending wage negotiations and the right to terminate, which was executed by Christopher I and the union. The parties failed to reach an agreement regarding wages. Christopher I gave written notice of termination to the union under the interim agreement. Deeming itself no longer bound by the contract, Christopher I implemented unilateral wage reductions and began laying off workers in violation of the terms of the union contract.

The union filed unfair labor practice charges in April 1986 against Christopher I with the National Labor Relations Board (NLRB). Arn, Mullins represented Christopher I in the NLRB proceedings.

In August 1987, an NLRB administrative law judge (ALJ) ruled that Christopher I had improperly terminated the union contract by failing to give the Section 8(d)(3) (National Labor Relations Act [NLRA], 29 U.S.C. § 158[d] [1988] ) 30-day notice. The 30-day notice should have been given to the Federal Mediation and Conciliation Service and to the Kansas Department of Human Resources. The NLRB's ALJ ordered Christopher I to restore the terms and conditions of the 1985 agreement until 30 days after the § 8(d)(3) notice is given. In addition, Christopher I was ordered to: (1) pay back wages to those employees whose wages had been reduced; (2) reinstate and to pay back wages to those employees who had been laid off in violation of the contract; (3) pay the union any loss of dues; and (4) make pension contributions as required under the 1985 contract.

Christopher I appealed the ALJ's decision to the NLRB. The ALJ's decision was affirmed by the NLRB in July 1988. The NLRB's ruling was judicially enforced in its entirety. NLRB v. George C. Christopher & Son, Inc., No. 89-9510, unpublished opinion (10th Cir., April 11, 1989).

The Malpractice Claim

Bank IV alleges Arn, Mullins committed legal malpractice in the representation of Christopher I in the termination of the 1985 union contract and during the unfair labor practice claim. The alleged malpractice is the failure to give or to advise Christopher I to give the 30-day advance termination notice.

Bank IV asserts that after the union filed the unfair labor practice claim, union representatives and the NLRB informed Christopher I and Arn, Mullins that the contract had been improperly terminated. The § 8(d)(3) notice (a one-page form) could have been given at any time and the 1985 union contract would have terminated 30 days after such notice was given. Christopher I's liability for violating the improperly terminated Union contract would have ceased 30 days after the § 8(d)(3) notice was given.

Arn, Mullins took the position that the § 8(d)(3) notice was not required because the union had waived notice by entering into the interim agreement. However, on September 24, 1985, the NLRB had held in Weathercraft Co. of Topeka, 276 N.L.R.B. 452, 453 (1985), that:

"Section 8(d) is unequivocal. It provides that the duty to bargain includes serving written notice upon the other party to a collective-bargaining agreement of one's desire to terminate or modify it, with notice also to the Federal Mediation and Conciliation Service and the appropriate state agency.

"Board authority is also unequivocal. Failure of a party desiring to terminate or modify a collective-bargaining agreement to give appropriate notice under Section 8(d)(3) precludes it from altering terms or conditions of the collective-bargaining agreement or engaging in a strike or lockout to enforce its proposed changes. This proscription exists notwithstanding that the expiration date of the agreement has passed. See Meatcutters Local 576 (Kansas City Chip Steak Co.), 140 NLRB 876 (1963); United Marine Local 333 ( General Marine Tranportation Corp.), 228 NLRB 1107 (1977)."

In addition, the United States Supreme Court has held that the § 8(d)(3) "notice requirement operates wholly independently of whatever notice requirement the parties have fixed for themselves." Labor Board v. Lion Oil Co., 352 U.S. 282, 292-93, 77 S.Ct. 330, 336, 1 L.Ed.2d 331 (1957). The NLRB relied on Weathercraft and Lion Oil in finding Christopher I had improperly terminated the 1985 contract.

We are reviewing a summary judgment motion. In resolving the case at bar, we deem the allegations of legal malpractice to be true.

The Loan Transaction

Bank IV entered into a revolving credit agreement with Christopher I, as borrower, in October 1986, while the NLRB claim against Christopher I was pending. The agreement was secured by a real estate mortgage, security interests in substantially all of Christopher I's assets, and stock assignments. The agreement provided for credit of up to $4,750,000, which was fully disbursed. In the credit agreement, Christopher I and each of the guarantors made the following relevant representations and warranties:

"5.05. Litigation. No Litigation or governmental proceedings are pending or threatened against Borrower or any Guarantor, the results of which might materially adversely affect its, his, or her financial condition or operations. Other than any liability disclosed in the financial statements referred to in Section 5.03 hereof, neither Borrower nor any Guarantor has any material contingent liabilities."

"5.09. Compliance. Borrower and each Guarantor is in material compliance with all Laws and regulations applicable to it,...