Callahan v. Clark

• Decision Date: 17 July 1995
• Docket Number: No. 94-1361,94-1361
• Citation: 321 Ark. 376,901 S.W.2d 842
• Parties: George M. CALLAHAN et al., Appellants, v. Mary Ellen CLARK, Appellee.
• Court: Arkansas Supreme Court

Page 842

901 S.W.2d 842

321 Ark. 376

George M. CALLAHAN et al., Appellants, v. Mary Ellen CLARK, Appellee.

No. 94-1361.

Supreme Court of Arkansas.

July 17, 1995.

James M. Moody, Troy A. Price, Little Rock, for appellant.

Kent J. Rubens, Timothy O. Dudley, West Memphis, for appellee.

HOLT, Chief Justice.

This is a legal malpractice case arising out of appellant George Callahan's representation of appellee Mary Ellen Clark in a divorce action. The case was submitted on interrogatories, whereby the jury concluded that Mr. Callahan was negligent in failing to determine the value of the marital business, setting damages at $120,000.00, and in advising Ms. Clark to sign the property settlement agreement awarding damages of $248,000.00 in this regard. The trial court entered judgment against Mr. Callahan and his law firm accordingly.

Mr. Callahan and his law firm appeal, asserting four specific points of error: (1) that the jury's award of $248,000 for negligence was based on conjecture and speculation, rather than on the required substantial evidence of damages flowing from specific breaches; (2) that the jury's award of $120,000 for negligent failure to value marital assets could only have been based on conjecture and speculation since the jury did not and could not have found that the court would have awarded such an amount; (3) that the trial court erred in allowing Ms. Clark's trial counsel to taint the proceedings below with unfairly prejudicial evidence of a supposed ethical violation by Mr. Callahan; and (4) that the trial court erred in refusing to allow Mr. Callahan to introduce evidence that Ms. Clark eventually lost custody of her children, the threat of which strongly bore on her inclination to sign the property settlement agreement. None of these arguments has merit. We affirm.

Facts

In March of 1989, appellee Mary Ellen Clark hired appellant George Callahan, an attorney with the firm of Callahan, Crow, Bachelor, and Newell of Hot Springs, to obtain what she thought would be an uncontested divorce from her husband, Harvey Clark, to whom she had been married for over eight years. When Ms. Clark first met with Mr. Callahan, she outlined her objectives in the divorce as follows: (1) that she receive custody of the couple's four children; (2) that she retain some role in operation of their business, Clark Industries, Inc., which produced replacement parts for classic cars, and which was operated out of a "shop" building on a small piece of land adjacent to the marital residence; and (3) that she obtain a steady income for herself and her children.

Shortly after Ms. Clark's initial meeting with Mr. Callahan, the divorce proceedings became bitterly contested. Mr. Clark sought custody of the children, and the business became the subject of much disagreement. Particularly, the Clarks accused each other of draining business assets and improperly using business funds, and the Internal Revenue Service ultimately imposed a tax lien on the business, with the Clarks facing personal liability for failure to withhold payroll taxes. Thereafter, the chancellor appointed Robert Ridgeway, an attorney who had previously represented the Clarks, as a special master to oversee Clark Industries.

Following the exchange of several drafts, the Clarks executed a settlement agreement in January of 1990 relating to both custody and division of their marital property. Ms. Clark was awarded custody of the children, and Mr. Clark agreed to pay $1200 per month in child support. Although Ms. Clark was no longer living there, she became the owner of the marital residence and the land on which the shop was located. Mr. Clark was permitted to continue to operate the business, but was required to pay Ms. Clark $3000 per month in rent for a period of five years for use of the property. In turn, Ms. Clark agreed to transfer all of her stock in the business to Mr. Clark, who, upon execution of the agreement, paid Ms. Clark $10,000 cash, $3000 in vacation pay, and $2766.33 in reimbursement for sums Ms. Clark had advanced to the business. Additionally, Mr. Clark paid $10,000 toward Mr. Callahan's attorney's fees, and agreed to assume full responsibility for the outstanding taxes reflected in the tax lien.

The property settlement agreement contained provisions that imposed responsibilities and risks on both parties, which included the condition that if Ms. Clark defaulted on the mortgage payments for either the marital residence or the shop, Mr. Clark could reclaim and obtain ownership of both pieces of property by paying the overdue payments and attorneys fees or costs. Conversely, if Mr. Clark defaulted on any of his required payments, Ms. Clark was given the right to reenter the premises of the business and to attach and sell all corporate assets.

In May of 1990, some four months after executing the settlement agreement, the bank note on the shop property became due and Mr. Clark refused to sign an extension of the note; thus, Ms. Clark was unable to refinance her loan. The bank initiated foreclosure proceedings, and Mr. Clark exercised his right under the agreement to reclaim the house and shop, and terminated the $3000 per month lease payments to Ms. Clark. Thereafter, Ms. Clark filed an action for malpractice against Mr. Callahan and his law firm, alleging, among other things, that he was negligent both in failing to have Clark Industries valued, and in advising her to sign the property settlement agreement. She amended her complaint to include Robert Ridgeway, the special master, as a separate defendant, but the trial court later dismissed Mr. Ridgeway upon Ms. Clark's motion.

The case proceeded to trial. Ms. Clark's first witness was the appellant, Mr. Callahan, who stated that he had been practicing law for 26 years. In order to value Clark Industries, he examined four to five years of tax returns, financials that Ms. Clark and Elaine Simpson, Ms. Clark's sister and part-time bookkeeper for Clark Industries, had provided to him, and the master's full reports containing accounts receivable and accounts payable information. In addition to reviewing these documents, Mr. Callahan walked through the business and looked at the equipment, and telephoned Ron Reagan, the owner of Chemfab, a similar business which manufactured aircraft parts, who advised him that liquidation of Clark Industries would not be in Ms. Clark's best interests.

As it was his understanding that custody was Ms. Clark's top priority, Mr. Callahan stated that he knew she would have to make some concessions with regard to the business, recognizing that the Clarks could not jointly operate the business, and that its real value was the genius of Mr. Clark, who had the contacts and identified the market. According to Mr. Callahan, he was able to give Mr. Clark much of the marital debt in the agreement, and obtained for Ms. Clark substantial hard assets--the real estate, home, building, and other personal property. Mr. Callahan testified that he explained to Ms. Clark that pursuant to the agreement, both parties ran substantial risks; however, he stated that he did not know that the bank would not let the $24,000 note on the shop be refinanced unless both parties signed it, and that he did not check with the bank as to whether Mr. Clark's signature would be required. He explained that there was never any presumption that Mr. Clark would be responsible for the note, as Ms. Clark had told him that she would not go back to One Bank, who had the note, as she did not like their rate of interest. According to Mr. Callahan, Ms. Clark "constantly reassured" him that she would be able to refinance the note and deal with the risk.

Patty Ann Lueken, a licensed attorney since 1989, testified as an expert witness on behalf of Ms. Clark, stating that 50 percent of her practice was devoted to domestic relations cases. She reviewed the files in the case, and offered her opinion that, a deposition or set of interrogatories would have been very helpful in order to value Clark Industries. Particularly, she stated that she would have taken Mr. Clark's deposition in order to determine what he thought the value of the company was, and would have used his deposition as a negotiating tool. It was Ms. Lueken's opinion that it was necessary to get an expert as to the value of the business in the case, and that Mr. Callahan failed to meet the applicable standard of care in his representation of Ms. Clark.

According to Ms. Lueken, paragraph 19, the default provision of the property settlement agreement, put Ms. Clark in a terrible position in that if she could not renew the note on the shop in May of 1990, she ended up with nothing, with the exception of a party barge, a Bronco, and some other personal items. This provision reads as follows:

In the event that the Wife defaults on the mortgage payment for either the home or the shop building note or notes, the Husband has the right to buy back the home, the land the home is situated on, the shop building and the land that the shop building is situated on by paying only the back payments owed at that time plus attorney's fees or other costs in order to bring the note or notes current. The default by the Wife on these payments is agreed by the parties to be defined as late payments sufficient to necessitate legal action by the filing of a Complaint for Foreclosure in order to collect these past due amounts by an attorney.

It was Ms. Lueken's opinion that Mr. Callahan, in advising Ms. Clark to sign this agreement containing this provision, should have been aware of what liabilities Ms. Clark had, as his file clearly showed that she was not going to be able to renew the note, as it reflected that some of her credit cards had been cut off, the Bronco payment was behind, and that there were IRS liens for which she was partially responsible. According to Ms. Lueken, this provision provided that, in the event that Ms. Clark defaulted,...