Bowers v. Transamerica Title Ins. Co.

Decision Date15 December 1983
Docket NumberNo. 48036-2,48036-2
Citation100 Wn.2d 581,675 P.2d 193
CourtWashington Supreme Court
PartiesJack L. BOWERS and Dona M. Bowers, husband and wife, and Robert Bowers, a single person, Respondents, v. TRANSAMERICA TITLE INSURANCE COMPANY, a corporation, Appellant. Quantum Construction, Inc., a corporation; Daniel E. Brown and Jane Doe Brown, husband and wife; and Bruce H. Lindgren and Jane Doe Lindgren, husband and wife, individually, Defendants.

Sorrel & Palken, Orly Sorrel, Torbenson & Thatcher, Richard Thatcher, Seattle, for appellant.

Delay, Curran, Thompson & Pontarolo, Joseph Delay, Henault & Hancock, John Hancock, Spokane, for respondents.

PEARSON, Justice.

Defendant Transamerica Title Insurance Company (Transamerica) appeals a summary judgment holding it liable to a vendor of real estate for failing to meet the standard of care required of an attorney, and an award of $42,805 in attorney fees.

Four issues are presented in this appeal:

1. Whether an escrow agent who is not authorized to practice law is liable in damages for failing to advise a vendor to obtain independent legal counsel as to the risks of an unsecured sale of real estate.

2. Whether the unauthorized practice of law by an escrow agent is an unfair or deceptive trade practice prohibited by the Consumer Protection Act, RCW 19.86.

3. Whether the measure of damages for the loss of a security interest in property is the reasonable value of the property on the date the security interest was lost.

4. Whether the trial court abused its discretion in awarding attorney fees of $42,805 under RCW 19.86.090.

We hold that:

1. An escrow agent is liable for damages resulting from the agent's failure to advise a party to a real estate closing to obtain independent legal advice.

2. The unauthorized practice of law by defendant constituted a violation of the Consumer Protection Act.

3. The reasonable value of the property is an appropriate measure of damages for the loss of a security interest in this case.

4. The trial court improperly calculated the "lodestar" figure and applied multipliers in determining reasonable attorney fees under the formula approved in Lindy Bros. Bldrs., Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir.1973). We remand for computation of reasonable fees under principles outlined below.

Plaintiffs Mr. and Mrs. Bowers, and Mr. Bowers' brother Robert, purchased a parcel of real estate in 1971 as an investment. In 1978, plaintiffs advertised the property for sale at a price of $45,000. They received a response to the advertisement from one Dan Brown, president of Quantum Construction, Inc. (Quantum). Brown expressed interest in buying the property, and after some discussion presented Mr. and Mrs. Bowers with an earnest money agreement, in which Quantum agreed to buy the property for $45,000, payable $10,000 at closing, with the balance to be paid "by purchaser executing a note in favor of the seller." The earnest money agreement designated Transamerica as the closing agent for the transaction. Mr. and Mrs. Bowers signed the earnest money agreement.

Mrs. Bowers held Mr. Bowers' power of attorney and signed most of the closing documents on his behalf. (Robert Bowers had contributed to the purchase price of the property, but was not a record owner; Mr. and Mrs. Bowers considered him a silent partner pursuant to an oral agreement.) Mrs. Bowers had been involved in one real estate transaction prior to the present one: the cash sale of another piece of property earlier in 1978.

The sale from the Bowerses to Quantum was closed by Bonniejean Evans, an escrow closer employed by Transamerica. Mrs. Evans is not an attorney. She prepared the closing documents from the earnest money agreement drawn up by Quantum and signed by Mr. and Mrs. Bowers. Mrs. Evans prepared the seller's escrow instructions and the buyer's escrow instructions, both of which specified that the note representing the unpaid portion of the purchase price was to be unsecured. In the course of preparing the papers, Mrs. Evans asked Dan Brown of Quantum whether the note was to be unsecured. Brown replied "The earnest money does not say secured by a deed of trust. It says a note." Mrs. Evans accordingly prepared an unsecured promissory note. Mrs. Bowers signed these and the other closing documents.

After closing, the deed to the property was delivered to Quantum. Quantum borrowed in excess of $30,000, using the property as security. In May 1979 a petition in bankruptcy was filed against Quantum. It was subsequently discovered that the shareholders of Quantum had departed the jurisdiction for places unknown. Plaintiffs consulted an attorney upon learning of the bankruptcy petition and the present litigation was commenced in May 1979.

Plaintiffs alleged that Transamerica had engaged in the unauthorized practice of law and in so doing had caused the plaintiffs to lose $35,000. Plaintiffs sought damages, attorney fees, and costs pursuant to RCW 19.86 (Consumer Protection Act). Transamerica denied it was practicing law, and claimed that plaintiffs were negligent in not seeking legal advice and that any loss suffered by plaintiffs was the result of fraud perpetrated by Quantum. Cross motions for summary judgment came before the Spokane County Superior Court in March 1981. The court decided that Transamerica had engaged in the unauthorized practice of law and was therefore held to the standard of an attorney. Transamerica fell below this standard by failing either to advise plaintiffs to seek independent counsel if they did not understand the transaction, or to explain to plaintiffs the hazards of an unsecured sale of real property. Transamerica was, therefore, liable to plaintiffs for the loss caused by this breach of duty. Moreover, the court held the unauthorized practice of law constituted a violation of the Consumer Protection Act. The court accordingly granted plaintiffs' motion for summary judgment as to proximate cause and liability, and left open the issue of damages to be determined at trial.

The trial on the issue of damages took place over 2 1/2 days in late April and early May 1981. The court concluded that the extent of plaintiffs' damages was the value of the hypothetical security interest they would have received had they sold the property subject to a deed of trust. After hearing considerable evidence as to the value of the property, with valuations ranging from $19,500 to $43,000, the court determined that the reasonable value of the lost security interest was $33,000.

The final stage of the proceedings was a hearing on July 8 and 9, 1981, to determine an award of reasonable attorney fees as provided by RCW 19.86.090. The court awarded attorney fees of $42,805, costs of $3,673, and additional damages under the Consumer Protection Act of $1,000. Transamerica appealed directly to this court.

It is not disputed that defendant's escrow closer, Mrs. Evans, engaged in the unauthorized practice of law. Mrs. Evans, who is not an attorney, prepared, in accordance with the earnest money agreement, escrow instructions, a promissory note, a statutory warranty deed, and a modification of the promissory note.

The selection and drafting of such documents is the work of lawyers and is not to be performed by laymen. We recognized in In re Droker & Mulholland, 59 Wash.2d 707, 719, 370 P.2d 242 (1962), that preparation of legal forms is the practice of law. We explained our position at greater length in Washington State Bar Ass'n v. Great Western Union Federal Sav. & Loan Ass'n, 91 Wash.2d 48, 55, 586 P.2d 870 (1978), where we held that

the selection and completion of form legal documents, or the drafting of such documents, including deeds, mortgages, deeds of trust, promissory notes and agreements modifying these documents constitutes the practice of law.

More recently, we reaffirmed our commitment " 'to protect the public from the activity of those who, because of lack of professional skills, may cause injury whether they are members of the bar or persons never qualified for or admitted to the bar' ". Hagan & Van Camp, P.S. v. Kassler Escrow, Inc., 96 Wash.2d 443, 447, 635 P.2d 730 (1981), quoting Great Western, 91 Wash.2d at 60, 586 P.2d 870. We invalidated in Hagan legislation (RCW 19.62) by which the Legislature sought to authorize laymen to perform legal tasks relating to real estate transactions.

If any explanation of our position were needed on this matter, this case surely provides it. Plaintiffs were exploited by a less than scrupulous businessman who contrived to obtain clear title to plaintiffs' property and proceeded immediately to encumber it. Plaintiffs did not understand that, because the sale was unsecured, they would have no recourse against the property if the purchaser defaulted. They proceeded blindly into the transaction, unaware of the pitfalls which awaited them. An attorney, trained to be aware of such pitfalls, could have restructured the transaction to avoid them. The lay escrow closer, lacking a lawyer's training, did not do so.

This court has held that a layman who attempts to practice law is liable for negligence. Mattieligh v. Poe, 57 Wash.2d 203, 204, 356 P.2d 328 (1960). The duties of an attorney practicing law are also the duties of one who without a license attempts to practice law. Burien Motors, Inc. v. Balch, 9 Wash.App. 573, 513 P.2d 582 (1973).

Escrow agents who have engaged in the unauthorized practice of law have been held liable for their negligence in at least two cases. In Andersen v. Northwest Bonded Escrows, Inc., 4 Wash.App. 754, 484 P.2d 488 (1971), an escrow agent drew up a mortgage which contained a provision that it was not to be recorded until after the recording of another mortgage. The Court of Appeals held that the failure of the escrow agent to advise the vendors of their peril in not recording the mortgage constituted a failure to conform to the standard of...

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