Blackhawk Bldg. Systems, Ltd. v. Law Firm of Aspelmeier, Fisch, Power, Warner & Engberg

• Decision Date: 17 August 1988
• Docket Number: No. 87-515,87-515
• Citation: 428 N.W.2d 288
• Parties: BLACKHAWK BUILDING SYSTEMS, LTD., An Iowa Corporation, Appellee, v. The LAW FIRM OF ASPELMEIER, FISCH, POWER, WARNER & ENGBERG; and Thomas D. Wynia, Appellants.
• Court: Iowa Supreme Court

Page 288

428 N.W.2d 288

BLACKHAWK BUILDING SYSTEMS, LTD., An Iowa Corporation, Appellee, v. The LAW FIRM OF ASPELMEIER, FISCH, POWER, WARNER & ENGBERG; and Thomas D. Wynia, Appellants.

No. 87-515.

Supreme Court of Iowa.

Aug. 17, 1988.

Charles W. Brooke and Carole J. Anderson of Lane & Waterman, Davenport, for appellants.

T. Todd Becker of Tom Riley Law Firm, Cedar Rapids, for appellee.

Considered en banc.

SCHULTZ, Justice.

This appeal in a malpractice action is from a judgment in favor of the plaintiff corporation against its former attorney and his prior law firm. A jury returned a verdict for the plaintiff and the trial court entered judgment accordingly. Although defendants raise several contentions, we believe the determinant issue involves the sufficiency of the evidence to support the submission of the proximate cause question to the jury. As we believe that the trial erred in submitting this issue, we reverse.

Blackhawk Building Systems, Ltd. (Blackhawk), an Iowa corporation, operated a business in Burlington, Iowa. They commenced this malpractice action against the law firm of Aspelmeier, Fisch, Power, Warner and Engberg, of Burlington and the firm's former associate, Thomas D. Wynia of Ames. One of Blackhawk's incorporators, Marcus Bergren, Jr., an original plaintiff, and an individual defendant were dismissed out of the action. These dismissals are not an issue on appeal.

The legal malpractice claim was grounded on Blackhawk's assertion that Wynia was negligent in drafting an employment agreement between Blackhawk and its employee, J.L. Parsons. Blackhawk maintains that Wynia should have suggested and included a non-compete clause in the agreement.

Prior to 1979, Bergren and his brother had been in the construction business doing concrete work. The Bergrens did a great deal of work for the company that had a franchise to sell and construct Butler Buildings for the five-county area near Burlington. Bergren learned that the Butler franchise was available for purchase and, on June 25, 1979, had Wynia draft a purchase agreement for the Butler Building dealership and its assets. In drafting this purchase agreement, Wynia included a covenant for the seller not to compete. Bergren, however, deleted this provision without consulting Wynia based on the seller's advice that he would already be protected from competition by the Butler franchise agreement.

Jack Parsons had previous experience with Butler and had worked as a sales representative for the Burlington franchise. Bergren orally agreed to employ Parsons to be the president, manager and sales representative for the company that he was about to incorporate. Bergren wanted to keep his own name from being publicly associated with the Butler franchise because his cement business did subcontracting for Butler competitors. In accordance with this desire, Bergren had Wynia incorporate Blackhawk on July 5, showing Parsons as the incorporator. On July 20, Parsons, as president of Blackhawk, entered into a franchise agreement with Butler Manufacturing Company to sell and construct Butler buildings in the five-county area. This agreement was neither drafted nor pre-approved by Wynia.

Sometime during this period, Wynia suggested to Bergren that Blackhawk should have an employment contract with Parsons. Wynia drafted the employment contract and Parsons and Bergren executed it on behalf of Blackhawk about September 1. The contract provided that either party may terminate the contract upon giving 90 days notice. The contract did not contain a non-compete clause. Wynia testified that he suggested such a clause, but that Bergren did not think it was necessary. Bergren, on the other hand, testified that he did not remember discussing a covenant with Wynia.

The record indicates that Bergren and Parsons got along well at first. The business did not prosper however, losing money in three of the first four years of operation. Blackhawk was unable to pay its taxes and business obligations and had unpaid judgments against it. In addition, the company was unable to obtain bonding. The relationship between Parsons and Bergren deteriorated as the business did. In April 1983, Parsons resigned from Blackhawk. A week or so later Butler terminated Blackhawk's franchise under a provision in their agreement which allowed termination if a signatory to the franchise agreement left the business. Parsons formed his own company, later obtained the Butler franchise and went into competition with Blackhawk. Shortly thereafter, Blackhawk ceased to be an ongoing business operation.

Although defendants raise several issues, we shall limit our discussion to the issue of proximate cause. We shall assume without deciding that there was substantial evidence of negligence on the part of Wynia to support the jury's verdict. Even though negligence has been established, proximate cause must be determined separately. Whiteaker v. State, 382 N.W.2d 112, 116 (Iowa 1986). It does not necessarily follow negligence. Oak Leaf Country Club, Inc. v. Wilson, 257 N.W.2d 739, 746 (Iowa 1977).

The burden of proving proximate cause in a legal malpractice action is the same as any other negligence action. To recover, the injured must show that, but for the attorney's negligence, the loss would not have occurred. Burke v. Roberson, 417 N.W.2d 209, 211 (Iowa 1987) (citing D. Meiselman, Attorney Malpractice: Law & Procedure § 3:1, at 39-40 (1980)); R. Mallen and V. Levit, Legal Malpractice § 102, at 177-78 (2d Ed.1981). In an action based upon the negligent handling of a law suit, the plaintiff must prove that absent the lawyer's negligence, the underlying suit would have been successful. Baker v. Beal, 225 N.W.2d 106, 109 (Iowa 1975). As applied to this situation, plaintiff would be required to show that absent the lawyer's negligence, Parsons would have signed a contract containing a covenant not to compete which would have effectively prevented the loss of the Butler franchise and the subsequent demise of Blackhawk. Essential to this chain of events, the plaintiff must show that Parsons would have agreed to a covenant not to compete.

The trial court denied defendant's directed verdict motion made at the close of plaintiff's evidence and a post-trial motion for judgment notwithstanding the verdict. Defendants urge that there was inadequate evidence to establish that Parsons would have signed the employment contract if the non-compete clause was included. In ruling on the post-trial motion the district court dismissed this contention stating, "the jury may reasonably infer that the special arrangements to engage Parsons as a long term employee and business associate that Parsons would have signed a covenant not to compete." We cannot agree with this conclusion.

First the trial court was mistaken in its opinion that there were special arrangements to engage Parsons as a long-term employee. No evidence was presented regarding the terms of employment decided upon in the original oral agreement. When the duration of an employment contract is indefinite, the contract may be terminated at will by either party. Drake v. Block, 247 Iowa 517, 520-21, 74 N.W.2d 577, 580 (1956). Their written employment contract allowed either party to terminate upon 90 days notice. While Bergren testified he intended to have Parsons as a company employee for a long period of time, the actual agreement allowed for early termination. There was no special arrangement for long-term employment which would substantiate an inference that Parsons would have agreed to a covenant not to compete.

The record is devoid of any evidence that would allow the jury to infer that Parsons would have agreed to a non-compete clause. The circumstances show that when the employment contract was signed, the business arrangements were already in place. Blackhawk was incorporated and doing business with Parsons as its president. The franchise agreement was signed. The covenant not to compete was solely for Blackhawk's benefit and was detrimental to Parsons' interests. While Blackhawk argues that Parsons would benefit by continued employment, the evidence is undisputed that Bergren sought Parsons out as an employee because of his experience and knowledge of...