Environmental Network v. Goodman Miller Llp

• Decision Date: 06 August 2008
• Docket Number: No. 2007-0739.,2007-0739.
• Citation: 119 Ohio St.3d 209,2008 Ohio 3833,893 N.E.2d 173
• Parties: ENVIRONMENTAL NETWORK CORPORATION et al., Appellees, v. GOODMAN WEISS MILLER, L.L.P., Appellant, et al.
• Court: Ohio Supreme Court

893 N.E.2d 173

119 Ohio St.3d 209

2008-Ohio-3833

ENVIRONMENTAL NETWORK CORPORATION et al., Appellees, v. GOODMAN WEISS MILLER, L.L.P., Appellant, et al.

No. 2007-0739.

Supreme Court of Ohio.

Submitted April 22, 2008.

Decided August 6, 2008.

Levin & Associates Co., L.P.A., Joel Levin, Aparesh Paul, and Christopher M. Vlasich; and James M. Wilsman Co., L.P.A., and James M. Wilsman, Cleveland, for appellees.

Ross, Dixon & Bell, L.L.P., and Richard A. Simpson, Washington, DC; and Gallagher Sharp and Monica A. Sansalone, Cleveland, for appellant.

Tucker, Ellis & West, L.L.P., Richard A. Dean, Irene C. Keyse-Walker, and Benjamin C. Sasse, Cleveland, urging reversal for amicus curiae Defense Research Institute.

Reminger & Reminger Co., L.P.A., Amy S. Thomas, Columbus, and Nicholas Satullo, Cleveland, urging reversal for amicus curiae Ohio Association of Civil Trial Attorneys.

Baker & Hostetler, L.L.P., and Wayne C. Dabb Jr., Cleveland, urging reversal for amici curiae Ohio Bar Liability Insurance Company and ProAssurance Corporation.

O'CONNOR, J.

{¶ 1} We are asked to determine the quantum of evidence that a plaintiff must produce in order to establish causation in a legal-malpractice case in which the sole theory advanced is that the plaintiff would have received a better outcome if the underlying case had been tried to its conclusion rather than settled.

{¶ 2} We hold that when a plaintiff premises a legal-malpractice claim on the theory that he would have received a better outcome if his attorney had tried the underlying matter to conclusion rather than settled it, the plaintiff must establish that he would have prevailed in the underlying matter and that the outcome would have been better than the outcome provided by the settlement. In other words, the "case-within-a-case doctrine" is the appropriate tool for analyzing the underlying claim in the matter before us today.

{¶ 3} For the following reasons, we hold that appellees, Environmental Network Corporation, Environmental Network and Management Corporation, and John J. Wetterich, did not satisfy their burden in the trial court and that therefore, the trial court should have granted a judgment notwithstanding the verdict in favor of appellant, Goodman Weiss Miller, L.L.P. Accordingly, we reverse the judgment of the court of appeals, which had affirmed the trial court judgment in favor of appellees.

I. Relevant Background

{¶ 4} The underlying case dates back to appellees' attempt to acquire the San-Lan Landfill from Hocking Environmental in 1995. At that time, appellees entered into a contract with Hocking Environmental under which appellees were paid to operate the landfill, and they were given an option to purchase the landfill.

{¶ 5} After signing this agreement, appellees entered into discussions regarding the purchase of a company called TNT Rubbish Disposal, Inc. ("TNT"). The agreement between appellees and TNT provided that if appellees could build up TNT's sales, appellees had the option to buy TNT.

{¶ 6} During this period, appellees also entered into a contract with Waste Management of Ohio ("WMO") under which appellees received a loan from WMO to continue the development of the San-Lan Landfill in exchange for providing WMO discounted disposal rates.

{¶ 7} Appellees' deals with TNT and WMO eventually soured, and appellees brought suit against TNT and its owners in 1998.¹ TNT filed a counterclaim, and WMO eventually intervened and filed a complaint asserting claims against appellees and TNT. If proven, WMO's claims against appellees were worth approximately $3 million. TNT then filed a counterclaim against WMO. Likewise, appellees filed a counterclaim against WMO. In addition, several of appellees' creditors filed creditor bills so that if appellees were successful, any judgment proceeds would be used to first pay off the creditors' judgments against appellees. These creditors' claims totaled approximately $750,000. In the aggregate, appellees alleged losses totaling almost $5.4 million, but faced a potential setoff of approximately $3.75 million.

{¶ 8} By the time the underlying matter came to trial, appellant represented appellees. On the second day of trial, the parties settled.² The settlement agreement erased appellees' debt to WMO and transferred $40,000 to appellees to apply toward the legal fees they owed to appellant; appellees did not pay anything out of pocket to settle the case.

{¶ 9} Nearly a year after the trial in the underlying matter, appellees filed the legal-malpractice case against appellant that is now before us. Appellees claimed that appellant's malpractice resulted in a coerced settlement and that appellees would have achieved a better result if the underlying case had been tried to its conclusion.

{¶ 10} The malpractice action went to trial, and the jury found in favor of appellees and awarded them damages in the amount of $2,419,616.81. Afterward, appellant moved for a judgment notwithstanding the verdict or, in the alternative, a new trial. Applying its interpretation of our decision in Vahila v. Hall (1997), 77 Ohio St.3d 421, 674 N.E.2d 1164, the trial court denied appellant's motion under the belief that appellees had satisfied their burden of establishing proximate causation by producing "some evidence" of the merits of their claims in the underlying action.

{¶ 11} Appellant appealed this order, along with the jury verdict, to the Eighth District Court of Appeals. The appellate court affirmed the trial court's judgment.

{¶ 12} Appellant then appealed to this court, and we granted jurisdiction over appellant's lone proposition of law — "In a legal malpractice case in which the plaintiff contends that he would have achieved a better result in [the] underlying litigation but for his attorney's malpractice, the plaintiff must prove he in fact would have obtained a better result, and what that result would have been, to establish the proximate cause and damages elements of the malpractice case."

II. Analysis

{¶ 13} Any discussion of the evidence necessary to establish legal malpractice in Ohio must begin with Vahila. In that case, we held that "[t]o establish a cause of action for legal malpractice based on negligent representation, a plaintiff must show (1) that the attorney owed a duty or obligation to the plaintiff, (2) that there was a breach of that duty or obligation and that the attorney failed to conform to the standard required by law, and (3) that there is a causal connection between the conduct complained of and the resulting damage or loss." Id., 77 Ohio St.3d 421, 674 N.E.2d 1164, at syllabus.

{¶ 14} In Vahila, the plaintiffs' lawsuit arose from the defendants' conduct in representing the plaintiffs in several civil matters and in representing Terry Vahila with respect to criminal charges and in an investigation of her by the Ohio Department of Insurance. Id., 77 Ohio St.3d at 422, 674 N.E.2d 1164. The claimed malpractice consisted of defendants' "failure * * * to properly disclose all matters and/or legal consequences surrounding the various plea bargains entered into by Terry Vahila and the settlement arrangements agreed to by [plaintiffs] with respect to the several civil matters." Id. at 427, 674 N.E.2d 1164. The plaintiffs alleged losses of $100,000 and lost profits of at least $200,000. Id. at 422, 674 N.E.2d 1164. Based on the theory that plaintiffs proposed, we held that "given the facts of [the] case, [plaintiffs] have arguably sustained damage or loss regardless of the fact that they may be unable to prove that they would have been successful in the underlying matter(s)." Id. at 427, 674 N.E.2d 1164.

{¶ 15} Thus, we recognized that "the requirement of causation often dictates that the merits of the malpractice action depend upon the merits of the underlying case." Id., 77 Ohio St.3d at 427-428, 674 N.E.2d 1164. The Vahila court determined that "depending on the situation, [a plaintiff may be required] to provide some evidence of the merits of the underlying claim," but declined to "endorse a blanket proposition that requires a plaintiff to prove, in every instance, that he or she would have been successful in the underlying matter." (Emphasis added.) Id. at 428, 674 N.E.2d 1164.

{¶ 16} The language quoted above shows that the court rejected a wholesale adoption of a "but for" test for proving causation and the mandatory application of the "case-within-a-case doctrine." The doctrine, also known as the "trial-within-a-trial doctrine," provides that "[a]ll the issues that would have been litigated in the previous action are litigated between the plaintiff and the plaintiff's former lawyer, with the latter taking the place and bearing the burdens that properly would have fallen on the defendant in the original action. Similarly, the plaintiff bears the burden the plaintiff would have borne in the original trial; in considering whether the plaintiff has carried that burden, however, the trier of fact may consider whether the defendant lawyer's misconduct has made it more difficult for the plaintiff to prove what would have been the result in the original trial." Restatement of the Law 3d, Law Governing Lawyers (2000) 390, Section 53, Comment b.

{¶ 17} However, in holding that not every malpractice case will require that the plaintiff establish that he would have succeeded in the underlying matter, the Vahila court necessarily implied that there are some cases in which the plaintiff must so establish. This is one such case.

{¶ 18} Here, appellees' sole theory for recovery is that if the underlying matter had been tried to conclusion, they would have received a more favorable outcome than they obtained in the settlement. Therefore, unlike the plaintiffs in Vahila, who sustained losses regardless of whether their underlying case was meritorious, appellees here could recover only if they could prove that they would have succeeded in the underlying case and that the judgment would...