Costello v. McFadden, 95-1105
| Decision Date | 18 September 1996 |
| Docket Number | No. 95-1105,95-1105 |
| Citation | 553 N.W.2d 607 |
| Parties | Patricia COSTELLO, Margaret Costello, Paula Costello and J. Chandler Knapek, Appellees, v. Kevin McFADDEN, Appellant, and Weldon Roberts and Big Sandy Oil, Inc., Defendants. |
| Court | Iowa Supreme Court |
Stephen H. Small, Fairfield, and Carl Michael Joerger, Newport Beach, CA, for appellant.
Jay B. Marcus of Marcus, Courtade & Thompson, P.C., Fairfield, and John Courtade of John Courtade, P.C., Austin, TX, for appellees.
Considered by McGIVERIN, C.J., and CARTER, LAVORATO, SNELL, and ANDREASEN, JJ.
The district court denied the defendant's motion to vacate judgment against him. The court also denied the plaintiffs' request for attorney fees. The defendant appealed and the plaintiffs cross-appealed. We affirm on the appeal and the cross-appeal.
In April 1991 Kevin McFadden approached the plaintiffs to solicit their investment in an oil well drilling operation conducted by Big Sandy Oil, Inc., a Texas corporation. The plaintiffs are Patricia Costello, Margaret Costello, Paula Costello, and J. Chandler Knapek. The Costellos are sisters; Knapek is Paula's husband. At the time, the plaintiffs lived in Iowa and McFadden lived in California.
McFadden spoke with the plaintiffs several times by phone and in person during April and May. McFadden strongly urged them to invest in the drilling operation. McFadden's acquaintance Welden Roberts was selling interests in the drilling operation, and McFadden urged the plaintiffs to purchase the interests from Roberts. At the time, Roberts also lived in California.
McFadden represented to the plaintiffs that investing in Big Sandy was an extremely low-risk, high-yield opportunity. McFadden personally guaranteed the return of their investment.
In May the plaintiffs signed an agreement with Big Sandy whereby each invested $7500. Later that summer, McFadden and Roberts spoke again with the plaintiffs, attempting to induce them to make further investment in Big Sandy.
In September the plaintiffs signed additional investment agreements with Big Sandy. The four invested an additional $15,000, bringing their collective investment to $45,000.
The well did not produce as McFadden had promised. The plaintiffs lost their entire $45,000 investment, less a $20,650 payment McFadden made them from his personal funds.
On May 13, 1993, the plaintiffs sued McFadden, Roberts, and Big Sandy. Count I of their petition is the only count involved in this appeal. In count I the plaintiffs alleged McFadden, Roberts, and Big Sandy sold them unregistered securities in violation of Iowa's Blue Sky Law. See Iowa Code § 502.501 (1991). The plaintiffs asked for judgment against each defendant, jointly and severally, for the lost amount of their investment plus prejudgment interests, costs, and attorney fees.
Roberts told McFadden he would take care of defending against the claims. Roberts retained Michael R. Brown as local counsel to defend against the claims. Roberts paid Brown a retainer.
On July 16 Brown filed an answer on behalf of all three defendants. The answer admitted (1) the plaintiffs collectively invested $45,000 for interests in an oil and gas well to be drilled and operated by Big Sandy in Texas and (2) the interests were not registered as securities in Iowa. The answer, however, denied that the oil and gas interests were securities under Iowa law. The answer asked that the petition be dismissed.
Between July 16 and January 20, 1994, Brown communicated with Roberts several times. Roberts told McFadden not to worry about the defense and that everything was being taken care of. Brown never spoke with McFadden, although Brown made one unsuccessful attempt to call.
On January 20 the plaintiffs filed a motion for summary judgment on count I--the sale of unregistered securities count. See Iowa R.Civ.P. 237. The court granted their unresisted motion on February 11.
The court filed the final judgment order on February 18. The judgment is against the three defendants jointly and severally and is in favor of each individual plaintiff for the amount of their outstanding investments.
Until the following August, McFadden was unaware that a judgment had been rendered against him. He then retained counsel, who filed a motion to vacate the judgment against McFadden.
In substance the motion alleged the adverse judgment should be vacated because it was obtained due to an "irregularity" under Iowa Rule of Civil Procedure 252(b). The motion alleged that Brown's unethical conduct in connection with his representation of the three defendants constituted the irregularity under rule 252(b). The motion also alleged a fall back position: Brown's failure to resist the summary judgment was tantamount to an unauthorized consent to judgment, and such consent was an irregularity under rule 252(b).
The plaintiffs filed a resistance. In a separate motion plaintiffs asked the court to award them attorney fees under Iowa Code section 502.501.
Following a hearing, the district court denied both motions. McFadden appeals and the plaintiffs cross-appeal.
As in the district court, McFadden contends on appeal that the judgment against him should be vacated because it was obtained as a result of an irregularity under Iowa Rule of Civil Procedure 252(b). Rule 252(b) provides in relevant part:
Upon timely motion and notice under R.C.P. 253 the court may ... vacate ... a final judgment or order ... on any of the following grounds:
....
(b) Irregularity or fraud practiced in obtaining the [final judgment or order].
The irregularity McFadden relies on relates to alleged unethical conduct by his attorney, Brown. The alleged unethical conduct includes violations of Iowa Code of Professional Responsibility DR 5-105(C) (), DR 5-105(D) (), DR 5-107(A)(1) (), and DR 5-106(A) ().
McFadden also argues the fall back position he relied on in the district court: Brown's lack of resistance to the motion for summary judgment amounted to an unauthorized consent to judgment. The unauthorized consent to judgment, McFadden argues, also constituted an irregularity under rule 252(b).
A. What constitutes an irregularity under rule 252(b)? In Forsmark v. State, 349 N.W.2d 763 (Iowa 1984), we defined irregularity in rule 252(b) this way:
The doing or not doing that, in the conduct of a suit at law, which, conformably with the practice of the court, ought or ought not to be done. Violation or nonobservance of established rules and practices. The want of adherence to some prescribed rule or mode of proceeding; consisting either in omitting to do something that is necessary for the due and orderly conducting of a suit, or doing it in an unseasonable time or improper manner.
Forsmark, 349 N.W.2d at 767 (quoting Black's Law Dictionary 744 (rev. 5th ed. 1979)).
In Forsmark, the trial judge found against the plaintiffs in a medical malpractice case against the State. When the case was tried to the court, the parties were unaware that a wrongful death malpractice action was pending against the plaintiffs' chief medical witness. The wrongful death malpractice action had been brought by the estate of the trial judge's deceased brother. The trial judge had discussed the case with the administrator of the estate. Following the adverse verdict, the plaintiffs in Forsmark filed a motion to vacate the judgment under rule 252(b). They alleged that the judge's failure to disqualify himself constituted an irregularity that required the judgment to be vacated and a new trial granted. Another judge heard the motion and ruled against the plaintiffs.
On appeal the plaintiffs relied on Iowa Code of Judicial Conduct Canon 3 C(1) (currently at Iowa Code of Judicial Conduct Canon 3 D(1)(a) (1996)). That canon requires judges to disqualify themselves from proceedings in which their impartiality might be questioned. The canon gives two examples of proper grounds for disqualification: (1) where the judge "has a personal bias or prejudice concerning a party," or (2) where the judge has "personal knowledge of disputed evidentiary facts." Iowa Code of Judicial Conduct Canon 3 C(1). We said in Forsmark that a Forsmark, 349 N.W.2d at 767 (emphasis added).
The "required procedures" referred to in Forsmark were illustrated in this passage from the case:
Briefly stated, Canon 3 C(1)(a), is basically a broad standard by which a judge should sua sponte determine the matter of self-recusation. Stated otherwise it, followed by specifics (interest and relationship), stands as a guiding precept upon which every judge, by an objective in- depth search of his or her own conscience, must decide whether a fair trial dictates he or she should make way for another judge to preside in a given justiciable controversy be it civil, criminal or otherwise.
Id. (quoting State v. Smith, 242 N.W.2d 320, 323-24 (Iowa 1976)).
The trial judge in Forsmark knew, before trial started, the identity of the plaintiffs' chief medical witness. We held this knowledge triggered the judge's duty to disclose his relationship with...
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