Bauermeister v. McReynolds

Citation571 N.W.2d 79,253 Neb. 554
Decision Date19 December 1997
Docket NumberNo. S-94-1088,S-94-1088
PartiesFred H. BAUERMEISTER and Dorothy L. Bauermeister, husband and wife, and Robert A. Bauermeister, individually, Appellees and Cross-Appellants, v. Timothy J. McREYNOLDS, Appellant and Cross-Appellee, Ronald B. Roots and Resource Recycling, Inc., Appellees and Cross-Appellees, and Richard P. Deaver and Clara E. Deaver, husband and wife, Appellees.
CourtSupreme Court of Nebraska

Syllabus by the Court

1. Equity: Appeal and Error. In an appeal of an equitable action, an appellate court tries factual questions de novo on the record and reaches a conclusion independent of the findings of the trial court, provided, where credible evidence is in conflict on a material issue of fact, the appellate court considers and may give weight to the fact that the trial judge heard and observed the witnesses and accepted one version of the facts rather than another.

2. Attorney and Client. A lawyer's duty is to his or her client and does not extend to third parties absent some facts which establish a duty.

3. Equity: Rescission: Fraud: Undue Influence: Proof. In an equitable rescission action based on fraud, undue influence, misrepresentation, or business coercion, the proponent bears the burden of proving each element by clear and convincing evidence.

4. Trial: Judges: Presumptions. It is presumed in a bench trial that the judge was familiar with and applied the proper rules of law unless it clearly appears otherwise.

5. Contracts: Rescission: Parties. The purpose of rescission is to place the parties in a status quo, that is, return the parties to their position which existed before the rescinded contract.

6. Contracts: Rescission: Fraud: Time. A party seeking rescission of a contract on the grounds of fraud, misrepresentation, or business coercion must do so promptly upon the discovery of the facts giving rise to the right to rescind.

7. Attorney and Client. Due to the fiduciary nature of the attorney-client relationship and because of the very real risk that self-interest will interfere with the lawyer's exercise of judgment on behalf of the client, a lawyer may enter into a business transaction with a client only under limited conditions.

8. Disciplinary Proceedings: Attorney and Client: Conflict of Interest: Proof. To establish a violation of Canon 5, DR 5-104(A), of the Code of Professional Responsibility, it is necessary to show (1) that the attorney and the client had differing interests in the transaction, (2) that the client 9. Attorney and Client. A lawyer who represents a business entity owes his or her allegiance to the entity, not to an individual shareholder.

expected the lawyer to exercise his or her professional judgment for the protection of the client, and (3) that the client consented to the transaction without full disclosure.

10. Attorney Fees. A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee.

William Jay Riley, of Fitzgerald, Schorr, Barmettler & Brennan, P.C., Omaha, for appellant.

Charles H. Wagner, of Edstrom, Bromm, Lindahl, Wagner & Miller, Wahoo, for appellees Bauermeister.

Steven E. Achelpohl, Omaha, for appellee Roots.

John C. Wieland and Monica Green Kruger, of Raynor, Rensch & Pfeiffer, Omaha, for appellee Resource Recycling.


GERRARD, Justice.

The plaintiffs-appellees, Fred H. Bauermeister and Dorothy L. Bauermeister and their son, Robert A. Bauermeister, filed a suit in equity against attorney Timothy J. McReynolds; Clara E. Deaver and Richard P. Deaver, Fred's sister and her husband; Resource Recycling, Inc., the Bauermeisters' joint venture business entity; and Ronald B. Roots, their joint venture partner. Among the theories of recovery pled were fraud, undue influence, business coercion, concealment and misrepresentation of facts, conflict of interest, and failure to disclose. As for relief, the Bauermeisters prayed for rescission of an agreement and restitution of all amounts paid to McReynolds, Roots, and Resource Recycling in regard to their share of royalties pursuant to the operation of a landfill by Waste Management of Nebraska, Inc., on the Bauermeisters' and the Deavers' property.

The Deavers answered by joining in the Bauermeisters' prayer for relief and cross-claiming against McReynolds seeking rescission and reformation of the agreement, as well as a declaration of rights should the court order restitution with respect to payments received by McReynolds.

Roots answered by denying the substance of the allegations and asserting the affirmative defenses of laches, ratification, and equitable estoppel. Roots also cross-claimed against the Bauermeisters, seeking a declaration of rights and reformation of the agreement should restitution be ordered with respect to McReynolds. In addition, Roots filed a separate cross-petition for declaratory relief against the Deavers and a separate cross-petition against McReynolds, alleging a breach of fiduciary duty and legal malpractice.

Resource Recycling answered, as did Roots, by denying the substance of the allegations and asserting the affirmative defenses of laches, ratification, and equitable estoppel.

McReynolds answered all petitions and cross-petitions by denying the substance of the allegations and asserting the affirmative defenses of laches, of equitable estoppel, and that certain actions were barred by the applicable statutes of limitation.

After a 14-day bench trial, the district court denied the Bauermeisters' prayer for rescission and restitution of all money paid to the defendants. The district court also denied the Deavers' prayer for relief. However, the district court concluded that McReynolds' attorney fees in this matter were clearly excessive and ordered reformation of the agreement in that regard. McReynolds timely appealed, and the Bauermeisters cross-appealed and successfully petitioned to bypass the Nebraska Court of Appeals. For the reasons that follow, we affirm in part, and in part reverse and remand with directions.


Roots had considerable experience in the field of solid waste disposal and in siting and operating landfills in Nebraska. McReynolds had represented Roots since about 1976 in regard to his business transactions. The Bauermeisters owned and farmed 200 acres of land along the northern boundary of western Douglas County. The Bauermeisters also farmed an adjoining 80 acres owned by the Deavers. In the early 1980's, Roots recognized that the existing Douglas County landfill was quickly approaching its capacity. Roots thought that if he could site a private landfill in Douglas County before the county's current landfill reached capacity, he would be in a favorable position to contract with Douglas County for the provision of landfill services once its current landfill was filled.

Roots recognized that the Bauermeister-Deaver property was suitable for just such a project. On August 31, 1985, Fred and Robert Bauermeister entered into an agreement with Roots to form a joint venture for the purpose of bidding a private landfill contract with Douglas County, as well as pursuing other private landfill projects on the Bauermeister-Deaver property. The joint venture agreement provided that rent would be paid to the Bauermeisters for land actually used for landfill purposes and that all capital costs, liabilities, and profits from the operation of the landfill would be shared equally between the Bauermeisters and Roots.

During the negotiations preceding the formation of the joint venture entity, Roots was represented by McReynolds, and the Bauermeisters were represented by their family attorney, Seymour Katz. Katz advised the Bauermeisters that once formed, the joint venture should be represented by McReynolds due to his considerable expertise in this area. Accordingly, the joint venture hired the law firm of Croker, Huck & McReynolds to represent it on an hourly fee basis.

From 1985 to 1987, the joint venture worked to obtain approval for the operation of a private landfill on the Bauermeister-Deaver property. This effort was unsuccessful in siting a landfill; however, the joint venture did obtain composting and recycling permits. During this period, Robert Bauermeister was primarily involved in pursuing the joint venture's interest on behalf of the Bauermeister family. Further, the joint venture agreement contemplated the formation of a corporation, Resource Recycling, to facilitate the operation of any landfill sited.

In early 1988, Douglas County's need for landfill space had become more acute. In January, Roots again approached McReynolds and his partner, Robert Huck, but this time with the idea of siting a public landfill on the Bauermeister property operated by Resource Recycling. McReynolds and Huck were hesitant to assist Roots in his renewed attempt to site a landfill on the Bauermeister property, as the joint venture still owed Croker Huck $42,000 in legal fees from the previous effort. Furthermore, substantial legal assistance would be needed to site a public landfill on the Bauermeister property, and Roots and the Bauermeisters were unwilling and unable to pay for continuing legal services on an hourly fee basis.

In May or June 1988, Roots approached McReynolds and Huck with a proposal he termed a "lean forward" fee agreement. Roots characterized this agreement as simply an incentive system: if successful, everyone profits; if not, then they all lose together. Roots proposed that the joint venture pay McReynolds $1 per ton of the gate fee if, and only if, the joint venture succeeded in siting the landfill. McReynolds thought that the project had a 5- to 10-percent chance of succeeding, but, nonetheless, eventually agreed to represent the joint venture on this ...

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