Berggren v. Schonebaum

• Decision Date: 20 December 2017
• Docket Number: 28216
• Citation: 905 N.W.2d 563
• Parties: John BERGGREN, Plaintiff, v. Jeff SCHONEBAUM d/b/a Schonebaum Quarter Horses, Defendant, and Lawrence Meendering, Defendant and Appellee.
• Court: South Dakota Supreme Court

905 N.W.2d 563

John BERGGREN, Plaintiff,

v. Jeff SCHONEBAUM d/b/a Schonebaum Quarter Horses, Defendant,andLawrence Meendering, Defendant and Appellee.

28216

Supreme Court of South Dakota.

ARGUED ON NOVEMBER 7, 2017

OPINION FILED December 20, 2017

JAKE FISCHER, SCOTT SWIER, MICHAEL A. HENDERSON of Swier Law Firm, Prof. LLC, Corsica, South Dakota, Attorneys for former plaintiff, attorney Jake Fischer and appellant.

GEORGE F. JOHNSON of Johnson Pochop & Bartling Law Office, Gregory, South Dakota, Attorneys for defendant and Appellee.

KERN, Justice

[¶ 1.] Lawrence Meendering filed a motion to disqualify opposing counsel Jake Fischer for an alleged violation of the South Dakota Rules of Professional Conduct. Meendering also sought attorney's fees from Fischer for costs incurred in bringing the motion. The circuit court, citing our decision in Jacobson v. Leisinger , 2008 S.D. 19, 746 N.W.2d 739 ( Leisinger II ), granted the motion. In imposing fees, the court reasoned that sanctions were appropriate because the motion to disqualify was "other litigation" resulting from Fischer's alleged ethical violation. We reverse.

Facts and Procedural History

[¶ 2.] In 2009, Meendering loaned Jeff Schonebaum approximately $17,000 to purchase a stud horse named Peppy from Heaven (Peppy). In April 2013, Schonebaum sold Peppy to John Berggren for approximately $11,000. Berggren intended to use Peppy to artificially inseminate other horses. However, an appraisal of Peppy's semen indicated it was unsatisfactory and too thin to freeze. In January 2014, Berggren sued Schonebaum, claiming Schonebaum misrepresented Peppy's ability to breed. Fischer of Swier Law Firm represented Berggren in the matter.

[¶ 3.] Sometime later in 2014, Meendering paid a visit to Schonebaum regarding personal loans Meendering made to him. Meendering, suspecting Schonebaum would not settle the remaining debts, visited an attorney in Wagner, South Dakota, on the return trip home. The attorney expressed his disinterest in the case and recommended Meendering contact the Swier Law Firm in Avon, South Dakota. Later that day, Meendering drove to Avon and met with Fischer in an unscheduled visit. Meendering claims the two discussed the money he loaned Schonebaum. According to Meendering, Fischer failed to disclose that he represented Berggren in a lawsuit against Schonebaum.

[¶ 4.] On January 13, 2015, Fischer deposed Schonebaum. During the deposition, the following exchange occurred:

Q. Do you know Lawrence Mendring [sic]?

A. Yeah.

Q. Who is he?

A. He's my banker.

Q. Where is—what bank does he work for?

A. He didn't work for no bank. He was a private lender.

Q. And where does he live?

A. Sheldon, Iowa.

Q. Was he involved in the purchase of Peppy?

A. Yeah.

Q. How so?

A. He was my lender.

Q. Tell me how that deal worked.

Schonebaum then explained the terms of the loan he received from Meendering. When asked whether he still banked with Meendering, Schonebaum responded that he did not.

[¶ 5.] In a letter sent by Fischer to Meendering dated August 24, 2015, Fischer introduced himself as the lawyer Meendering met the year prior. Fischer explained that he was currently involved in a lawsuit against Schonebaum regarding the sale of Peppy. Fischer requested Meendering contact him by phone to speak about Schonebaum. Schonebaum and Meendering claim Meendering and Fischer later spoke over the phone.

[¶ 6.] In October 2015, Berggren amended his complaint against Schonebaum to include Meendering as a defendant. Berggren alleged that Meendering formed a partnership with Schonebaum to purchase, use, and sell Peppy and that Meendering was jointly liable for Schonebaum's wrongful conduct. On August 18, 2016, Meendering filed a motion seeking Fischer's disqualification from the case. Meendering also requested sanctions in the form of attorney's fees for costs incurred in bringing the motion, arguing that Fischer violated Rule 1.18 of the Rules of Professional Conduct.¹ Rule 1.18 provides in part that an attorney shall not use or reveal information learned in a consultation with a prospective client. SDCL ch. 16-18 app. Rule 1.18(b). Further, an attorney shall not "represent a client with interests materially adverse to those of a prospective client in the same or a substantially related matter if the lawyer received information from the prospective client that could be significantly harmful to that person in the matter[.]" SDCL ch. 16-18 app. Rule 1.18(c).

[¶ 7.] On October 12, 2016, the circuit court held a hearing on the motion to disqualify; and on October 24, 2016, granted the motion disqualifying Fischer from the case. The court also requested further briefing on the issue of attorney's fees, which the parties provided. On February 27, 2017, the circuit court issued a memorandum opinion awarding Meendering $6,416.18 in attorney's fees assessed against Fischer for expenses incurred in connection with the motion to disqualify. The court noted that Meendering cited no specific statutory authorization for an award of attorney's fees arising out of a violation of the Rules of Professional Conduct. Further, the court observed Meendering never made a formal request for sanctions under SDCL 15-6-11(c) (Rule 11). Nevertheless, the court, relying on Leisinger II , awarded Meendering attorney's fees. In Leisinger II, we held that attorney's fees may be awarded when the fees are "incurred in other litigation which is necessitated by the act of the party sought to be charged." 2008 S.D. 19, ¶ 15, 746 N.W.2d at 743.

[¶ 8.] Fischer appeals from the circuit court's order awarding attorney's fees,² arguing that Leisinger II is inapplicable and that attorney's fees are not appropriate under Rule 11. Meendering, as appellee, argues that attorney's fees were an appropriate sanction under the "other litigation" exception in Leisinger II .³

Analysis and Decision

[¶ 9.] "For purposes of awarding attorney fees, South Dakota subscribes to the ‘American Rule.’ " Rupert v. City of Rapid City , 2013 S.D. 13, ¶ 32, 827 N.W.2d 55, 67. Generally, the American Rule requires that each party in a civil case bear their own attorney's fees. Id. However, the parties may enter into an agreement entitling the prevailing party to attorney's fees, and attorney's fees may be charged against a party if authorized by statute. Id. ; see also SDCL 15-17-38. In determining whether a statute permits recovery of attorney's fees from an opposing party, "[t]his Court has rigorously followed the rule that authority to assess attorney fees may not be implied, but must rest upon a clear legislative grant of power." Rupert , 2013 S.D. 13, ¶ 32, 827 N.W.2d at 67.

[¶ 10.] Normally, an award of attorney's fees is reviewed for an abuse of discretion. See In re Estate of Finch , 2017 S.D. 15, ¶ 20, 893 N.W.2d 783, 788. However, the circuit court concluded that attorney's fees were appropriate in this case based on an analysis of Leisinger II , and we review conclusions of law de novo. Tri-City Assocs., L.P. v. Belmont, Inc. , 2014 S.D. 23, ¶ 19, 845 N.W.2d 911, 916. The court, in awarding attorney's fees, observed that "[Meendering] is apparently relying on the [circuit] court's inherent powers to enforce the Rules of Professional Responsibility." Citing our holding in Leisinger II as "credence [for] such an argument," the court conflated its inherent authority to enforce the Rules with Leisinger II's "other litigation" exception to the American Rule. The court stated that it "believe[d] that the Motion to Disqualify constitutes ‘other litigation which is necessitated by the act of the party sought to be charged’ and as such, attorney fees as a sanction for ethics violations in this litigation [were] warranted."

[¶ 11.] However, neither Leisinger II nor its antecedents support an award of attorney's fees on this record. Leisinger II followed a previous decision by this Court, Leisinger v. Jacobson , 2002 S.D. 108, 651 N.W.2d 693 ( Leisinger I ), reversing an award of $120,000 in punitive damages in favor of Jacobson, the plaintiff. Leisinger II , 2008 S.D. 19, ¶ 2, 746 N.W.2d 739, 741. In Leisinger I , we held that the award should be reduced to $25,000. Id. In the alternative, we authorized a new trial on the issue of punitive damages if Leisinger rejected the reduced award. Id. Leisinger rejected the award. Id. However, Leisinger failed to retry the case within one year of the remand pursuant to SDCL 15-30-16 (repealed 2011), thereby forfeiting any right to punitive damages. Id. Regardless, Leisinger refused to return the $120,000 to Jacobson, who in turn obtained a court order requiring return of the money. Id. ¶ 3. When Leisinger failed to comply with the court order, Jacobson filed a conversion action against Leisinger. Id. ¶ 5. After successfully recovering the $120,000, Jacobson moved for attorney's fees related to the various court proceedings required to reclaim her money, which the circuit court denied. Id. ¶ 8, 746 N.W.2d at 742.

[¶ 12.] Jacobson appealed the denial, and we reversed and remanded. Id. Although we observed that "[g]enerally ... attorney fees are not recoverable in civil actions," we "adopt[ed] the rationale that ... ‘in conversion cases, the reasonable and necessary expenses incurred in recovering the property are a proper element of damage.’ " Id. ¶ 14, 746 N.W.2d at 743 (quoting State v. Taylor , 506 N.W.2d 767, 768 (Iowa 1993) ).⁴ In so holding, we analogized the case to Foster v. Dischner , 51 S.D. 102, 212 N.W. 506 (1927). Dischner involved a plaintiff suing for attorney's fees after the defendant subjected his land to an unlawful levy. 212 N.W. 506. The plaintiff received an award of attorney's fees, which was affirmed on appeal. Id. at 507. In Leisinger II , we noted that like in Dischner , Jacobson sought "similar damages, which resulted from her attempt to recover her property ." 2008 S.D. 19, ¶ 16, 746 N.W.2d at 743 (emphasis added). Leisinger's actions "left Jacobson with only one course of action, i.e., further...