Dalo v. Kivitz

• Decision Date: 07 August 1991
• Docket Number: No. 90-712.,90-712.
• Citation: 596 A.2d 35
• Parties: David D. DALO and D-Developers, Inc., Appellants, v. Murray A. KIVITZ, et al., Appellees.
• Court: D.C. Court of Appeals

596 A.2d 35

David D. DALO and D-Developers, Inc., Appellants, v. Murray A. KIVITZ, et al., Appellees.

No. 90-712.

District of Columbia Court of Appeals.

Argued May 16, 1991.

Decided August 7, 1991.

Mitchell F. Dolin, with whom John Vanderstar and Laura M. Steeves were on the brief, for appellants.

Geoffrey T. Hervey, with whom David P. Durbin and Carol Ann Petren were on the brief, for appellees.

Before FERREN, TERRY and FARRELL, Associate Judges.

FARRELL, Associate Judge:

This appeal arises from a judgment for legal malpractice in favor of appellant David D. Dalo against his attorneys, appellees Kivitz and Liptz. Dalo challenges the refusal of the trial court, as trier of fact, to award him attorney's fees as damages, punitive damages, and certain compensatory damages.¹ Only the third claim has merit, necessitating a partial remand for further proceedings.

I.

During the summer of 1988 Dalo, a real estate developer, negotiated a real estate contract to purchase property in the District of Columbia known as "Greystone" for $3,765,000. Pursuant to an assignment agreement, Dalo assigned his right to buy Greystone to J. Eugene Wills, also a real estate developer. Under the terms of the assignment agreement, if Wills purchased Greystone, he owed Dalo $435,000; if Wills through no fault of Dalo's failed to purchase Greystone, he owed Dalo $87,000, that sum to be held in escrow. The closing on the transaction was scheduled for October 4, 1988.

Meanwhile Dalo's attorneys, law partners Kivitz and Liptz,² arranged a joint venture among themselves, Dalo, and another client, banker Charles J. D'Arco. The purpose of the venture was to split the $435,000 Dalo expected to earn from the Greystone transaction. When entering this business venture with the clients, Kivitz and Liptz failed to advise either client about the potential conflicts of interest that existed among the parties to the joint venture agreement.

On October 3, 1988, Kivitz, Liptz and D'Arco learned that Dalo intended to renege on his promise to split the money. On October 4, therefore, Kivitz, Liptz and D'Arco sued Dalo, the title company for the Greystone deal, and the stakeholders of the money held in escrow. They requested a declaratory judgment of the validity of the joint venture agreement and claimed their shares of Dalo's proceeds from the Greystone transaction, scheduled to close that day. Upon filing the lawsuit, Kivitz and Liptz terminated their attorney-client relationship with Dalo, withdrew from representing him in all pending litigation, and retained possession of Dalo's files as a lien for over $17,000 in outstanding attorney's fees. For reasons unrelated to the lawsuit brought by the attorneys, Wills never purchased Greystone. The stakeholders for the transaction froze the escrow account pending the outcome of the lawsuit. Ultimately, Dalo lost the opportunity to collect the $87,000 due under the assignment agreement with Wills.

Dalo responded to the lawsuit by filing a nine-count counterclaim against Kivitz, Liptz and D'Arco for injuries he sustained from the conduct of his attorneys regarding the Greystone deal, including the filing of the lawsuit against him.³ Dalo requested compensatory damages, punitive damages against Kivitz and Liptz, the return of his legal files, and attorney's fees.

The trial judge entered summary judgment against Kivitz, Liptz and D'Arco on the merits of their contract claims against Dalo, concluding that the joint venture agreement was void because Kivitz and Liptz, as Dalo's attorneys, had engaged in a business deal with Dalo while failing to discharge their fiduciary duties owed him in the attorney-client relationship. That ruling was indisputably correct.⁴ See Rule 1.8, Rules of Professional Conduct; Fielding v. Brebbia, 130 U.S.App.D.C. 270, 272, 399 F.2d 1003, 1005 (1968); United States v. Orsinger, 138 U.S.App.D.C. 403, 412, 428 F.2d 1105, 1114, cert. denied, 400 U.S. 831, 91 S.Ct. 62, 27 L.Ed.2d 61 (1970).

After a bench trial on Dalo's counterclaims, Judge Taylor determined that Kivitz and Liptz had committed legal malpractice in the form of numerous violations of ethical standards.⁵ On appeal, this malpractice liability is undisputed. However, the judge awarded Dalo damages only in the amount of $737.50 for "costs associated with reconstructing Dalo's files that Kivitz and Liptz failed and refused to turn over to Dalo." On appeal, Dalo challenges the denial of additional damages in three respects.

II.

Dalo first seeks attorney's fees as an element of his damages, contending he should be compensated for successfully defending against the contract claims by Kivitz and Liptz and also for prosecuting his own successful malpractice claims against the attorneys.

Dalo takes no issue with the American Rule under which, as interpreted in this jurisdiction, "every party to a case shoulders its own attorneys' fees, and recovers from other litigants only in the presence of statutory authority, a contractual arrangement, or certain narrowly-defined common law exceptions." Synanon Found., Inc. v. Bernstein, 517 A.2d 28, 35 (D.C.1986). See also In re Antioch Univ., 482 A.2d 133, 136 (D.C.1984); Biddle v. Chatel, 421 A.2d 3, 7 (D.C.1980). To justify his claim for attorney's fees, Dalo invokes principles similar to those underlying the exception to the American Rule for wrongful involvement in litigation. See Auxier v. Kraisel, 466 A.2d 416, 420-21 (D.C.1983). Under this exception, attorney's fees may be awarded to clients who have been forced into litigation by their attorney's malpractice. See, e.g., Knight v. Furlow, 553 A.2d 1232, 1235 (D.C.1989); Olson v. Fraase, 421 N.W.2d 820, 828-29 (N.D.1988); Sorenson v. Fio Rito, 90 Ill.App.3d 368, 370-73, 413 N.E.2d 47, 51-52 (1980); McClain v. Faraone, 369 A.2d 1090, 1093-94 (Del.Super.Ct.1977).

The exception has specific requirements:

Where a plaintiff seeks in a separate action to recover attorney's fees incurred by him in earlier litigation with a third person arising out of the tortious act of the defendant, ... if the natural and proximate consequences of the defendant's tortious act were to involve the plaintiff in litigation with a third person, reasonable compensation for attorney's fees may be recovered as damages against the author of the tortious act.

Auxier, 466 A.2d at 420 (quoting Brem v. United States Fidelity & Guar. Co., 206 A.2d 404, 407 (D.C.1965)). Hence there are three requirements for an award under this exception: "(1) the plaintiff must have incurred the fees in the course of prior litigation; (2) ordinarily that litigation must have occurred between the plaintiff and a third party who is not the defendant in the present action; and (3) the plaintiff must have become involved in the underlying litigation as a consequence of the defendant's tortious act." Id. See Safeway Stores, Inc. v. Chamberlain Protective Servs., Inc., 451 A.2d 66, 69 (D.C.1982); Biddle v. Chatel, 421 A.2d at 7. This exception to the American Rule has "no application where the litigation is between the same parties." Murphy v. O'Donnell, 63 A.2d 340, 342 (D.C.1948).⁶

Dalo seeks attorney's fees from Kivitz and Liptz for all of his litigation with them. Because this claim is based on expenses incurred in the lawsuit between the same parties and not litigation that "occurred between Dalo and a third party who is not the defendant in the present action for fees," the wrongful-involvement-in-litigation exception is inapplicable here.⁷ Dalo points out that the litigation also involved the banker D'Arco, who is not involved in the fee claim. Dalo, however, has not claimed attorney's fees for collateral litigation with D'Arco or for any litigation involving independent allegations by D'Arco. His claim for fees against Kivitz and Liptz lacks sufficient involvement with a third party litigant to meet the demands of the exception.

Dalo argues, however, that this appeal is not really about the American Rule (and its prohibition on fee-shifting, save in narrow circumstances) at all but instead about whether a client wronged by his attorney's breach of fiduciary duty in suing him can recover as damages attorney's fees directly caused by the wrong. "In cases where the American rule applies," Dalo asserts, "the successful plaintiff has incurred fees to remedy a wrong, but—unlike here—the fees were not directly caused by the wrong itself." The argument is creatively presented, but we conclude that Dalo in effect urges us to create a new exception to the American Rule when an attorney sues a current client in breach of the attorney's fiduciary duty. Since we are unpersuaded that it is possible to fashion this new exception in a principled way, we reject it.

Dalo points out by analogy that, as an item of compensatory damages, plaintiffs in cases sounding in malicious prosecution are entitled to attorney's fees incurred in defending the unmeritorious suit. See Weisman v. Middleton, 390 A.2d 996 (D.C.1978). "Reasonable and necessary legal fees incurred in defending the prior suit" are, to be sure, traditional elements of a damage award in malicious prosecution cases. Id. at 999.⁸ But to succeed in such an action, the plaintiff must show that a prior action instituted against him maliciously and without probable cause was terminated in his favor and that he sustained special injury. Ammerman v. Newman, 384 A.2d 637 (D.C.1978). "It is generally held that the requisite malice is that dependent on the existence of an improper motive (as distinguished from malice in the technical legal sense), and has also been described as the existence of an evil purpose or motive, a wicked or mischievous intent, or a wilful, wanton, reckless or oppressive disregard of the rights of the plaintiff." Id. at 640-41.⁹ The trial judge, however, found that Kivitz and Liptz lacked malice and had probable cause to file the lawsuit. Although as lawyers they improperly sued a current client, the filing "may...