Carlson v. Morton

• Decision Date: 24 November 1987
• Docket Number: No. 87-128,87-128
• Citation: 44 St.Rep. 1929,745 P.2d 1133,229 Mont. 234
• Parties: Gerald CARLSON and Precision Automotive, Inc., a Montana corporation, Plaintiff and Appellant, v. Douglas K. MORTON, Defendant and Respondent.
• Court: Montana Supreme Court

Page 1133

745 P.2d 1133

229 Mont. 234

Gerald CARLSON and Precision Automotive, Inc., a Montana corporation, Plaintiff and Appellant, v. Douglas K. MORTON, Defendant and Respondent.

No. 87-128.

Supreme Court of Montana.

Submitted Oct. 6, 1987.

Decided Nov. 24, 1987.

Richard DeJana argued, Kalispell, for plaintiff and appellant.

Warden, Christiansen, Johnson & Berg, Stephen Berg argued, Kalispell, for defendant and respondent.

HARRISON, Justice.

Plaintiff appeals an order of the District Court of the Eleventh Judicial District granting a directed verdict to defendant Morton. The plaintiff had sued Morton alleging that he had been negligent in handling certain legal matters for the plaintiff and had misrepresented his interests. The attorney for the plaintiff notified the court and the defendant when the matter came on for trial January 19, 1987 that he would not be calling an expert witness, as he had stated at pretrial conference. Plaintiff's attorney then made his opening statement, at the end of which, the defendant made a motion to dismiss the case for failure to provide expert testimony. Both sides briefed the question to the court. The court then heard arguments and entered an order under Rule 50, M.R.Civ.P., dismissing the case.

We affirm.

Morton was a loan officer and vice president of First Security Bank in Kalispell, Montana when he met Carlson in 1977. Morton, a law school graduate, has been admitted to the practice of law in Montana and did practice for several years before he returned to banking in the mid-1970s. He continued to moonlight practicing law after he joined the bank. He and Carlson built a friendship around their mutual interest in old cars. Morton had the opportunity to do some legal work concerning Carlson's property settlement and custody agreement when Carlson's marriage dissolved.

In 1981, Carlson purchased a business on which the Small Business Administration and the Bank of Columbia Falls were foreclosing. To aid in this purchase, Carlson asked Morton to incorporate the newly acquired business in the name of Precision Automotive, Inc. On December 18, 1981, the Secretary of State approved the proposed articles of incorporation and issued a certificate of incorporation. Carlson contends, however, that Morton failed to effectively complete the corporation since he failed to file bylaws or organizational minutes for some fifteen months.

Carlson, though, operated the business as if it had been incorporated. He hired a man by the name of Jack Manning to work at Precision Automotive. Manning brought with him a pinpress that he said Carlson could use in his business. The pinpress served as security for some car repairs that Manning had not been able to pay for. On July 1, 1982, Manning approached Morton at First Security Bank about the possibility of obtaining a $2,000 loan. He was told that since he had not worked for a full year in the Flathead Valley, the bank would require a guaranty. Manning suggested that his employer Carlson could serve as a guarantor. It is not clear what happened at this point. But taking into consideration the allegations most favorable to the appellant, it appears that Carlson told Morton he was reluctant to sign a guaranty. Nevertheless, the loan was made, Carlson was named as guarantor but had not signed the note, Manning got his $2,000 after pledging the pinpress as security, and Manning then left the area. On July 25, 1982, after it was apparent that Manning had no intention of repaying the loan, Morton presented the written guaranty to Carlson for his signature as guarantor. There was some discussion as to whether Carlson should sign the guaranty. Morton encouraged him to sign and so Carlson did sign the guaranty. The guaranty note at some point was backdated to the date of the loan. Carlson had told Morton he feared that others might have an interest in the pinpress. Carlson told Morton he was thinking of removing the serial number to retard any prior lien holder's right to the pinpress. Carlson alleges that Morton encouraged him to do that. Carlson subsequently removed the serial number.

Morton completed the incorporation of Precision Automotive in March 1983 when he finished the bylaws and organizational minutes. In April 1983, the bank sued Carlson for possession of the pinpress. In an affidavit in support of the bank's claim, Morton indicated that the serial number had been removed. The District Court upheld the bank's claim to the pinpress. Carlson's business at Precision Automotive was seriously affected by the loss of the pinpress and within several months, Precision Automotive was forced out of business. Carlson and Precision Automotive filed a cause of action on May 20, 1983 naming Morton as defendant. The complaint, as amended on October 26, 1983, alleged that Morton had violated Disciplinary Rules, 1-102(A)(4), 5-101(A), 5-104, 5-105, 5-107, 6-101 and 7-102 of the Code of Professional Responsibility. Carlson claims that the violation of these Disciplinary Rules was implied malice and as such constituted negligence on the part of the attorney.

The District Court ruled that such charges require expert testimony to delineate the degree of care expected of an attorney handling a client's affairs. The court ruled that since reasonable minds could properly differ over the plaintiff's contentions, it would be unfair to lay jurors to force them to figure out the responsibility of an attorney in this matter without the aid of an expert witness. On appeal, Carlson urges that the Code of Professional Responsibility's Disciplinary Rules state a minimum standard of care, that, when breached, establishes malpractice. He argues that these Disciplinary Rules state the attorney's duty so succinctly that an expert witness is not required to demonstrate that Morton's actions were improper and negligent. The question of whether expert testimony is required in a legal malpractice case is one of first impression in Montana.

The Canons of Professional Ethics and their accompanying Disciplinary Rules were adopted by this Court in 1973 (see 160 Mont. xxiii) to assure the utmost integrity in the legal profession and the impartial administration of justice. State ex rel. Coburn v. Bennett (1982), 202 Mont. 20, 32, 655 P.2d 502, 508. In 1985, this Court replaced the Canons with the Rules of Professional Conduct, Montana Supreme Court Order No. 84-303, dated June 6, 1985, but the intent of governing the conduct of attorneys remained. Carlson claims Morton engaged in fraudulent or dishonest misrepresentations in violation of DR 1-102(A)(4); used a confidence of the client to his disadvantage as prohibited by DR 4-101(B); undertook employment when his interests impaired his professional judgment as prohibited in DR 5-101; did not refuse employment even though it might possibly be adverse to his interest as a bank officer as proscribed by DR 5-104 and DR 5-105, and neglected a matter entrusted to him, in violation of DR 6-101. These disciplinary rules have counterparts in the Model Rules of Professional Conduct adopted in 1985, which while differing in language and construction, establish the bounds of ethical conduct by lawyers and are employed for disciplinary purposes.

At issue is whether the applicable ethical rules create a duty in and of themselves so that a jury may determine a breach of a legal duty merely by determining whether the attorney abided by the rules. If the answer to that inquiry is negative, then an expert witness must testify so as to acquaint the jurors with the attorney's duty of care. It is fundamental that any attorney is required to use reasonable care or skill in handling his client's affairs. Clinton v. Miller (1951), 124 Mont. 463, 483-84, 226 P.2d 487, 498. The failure to employ such skill may result in the attorney's liability for damages to his client. Clinton, 226 P.2d at 498. The Canons of Professional Ethics and the later Model Rules of Professional Conduct have been used exclusively in disciplinary proceedings in Montana. J. Faure and R.K. Strong, The Model Rules of Professional Conduct: No Standard for Malpractice, 47 Mont.L.Rev. 363, 369 (1986). When plaintiffs have based claims for negligent practices of law on attorneys' duties to abide by ethical codes, courts have dismissed such cases. In Bickel v. Mackie (N.D.Iowa 1978), 447 F.Supp. 1376, aff'd (8th Cir.1983), 590 F.2d 341, the trial court ruled that violation of the Code of Professional Ethics is not necessarily a tortious act and does not create a private cause of action. Bickel, 447 F.Supp. at 1383. Similarly, in Bob Godfrey Pontiac, Inc. v. Roloff (Or.1981), 630 P.2d 840, a used car dealer sued two attorneys who had failed in a lawsuit against the car dealer. The car dealer alleged that the two attorneys had misled the court with false statements of fact, which he claimed was in direct violation of the Code of Professional Conduct. However, the court ruled that a violation of the Code of Professional Conduct does not give rise to a private cause of action. Roloff, 630 P.2d at 849.

Such reasoning is supported by the Preamble to the Model Rules of Professional Conduct as promulgated by the American Bar Association. That preamble states in part:

Violation of a Rule should not give rise to a cause of action nor should it create any presumption that a legal duty has been breached. The Rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability. Furthermore, the purpose of the Rules can be subverted when they are invoked by opposing parties as procedural weapons. The fact that a Rule is a just basis for a lawyer's self-assessment, or for sanctioning a lawyer under the administration...