Franko v. Mitchell

• Decision Date: 02 June 1988
• Docket Number: No. 1,CA-CIV,1
• Citation: 158 Ariz. 391,762 P.2d 1345
• Parties: Circie FRANKO, Plaintiff-Appellant, v. James M. MITCHELL, Defendant-Appellee. 9225.
• Court: Arizona Court of Appeals

Page 1345

762 P.2d 1345

158 Ariz. 391

Circie FRANKO, Plaintiff-Appellant, v. James M. MITCHELL, Defendant-Appellee.

No. 1 CA-CIV 9225.

Court of Appeals of Arizona,

Division 1, Department A.

June 2, 1988.

Petition and Cross-Petition for Review Denied Nov. 8, 1988. ^*

[158 Ariz. 392] Pasquale R. Cheche and Paul G. Ulrich, Phoenix, for plaintiff-appellant.

[158 Ariz. 393] Jennings, Strouss & Salmon by William T. Birmingham, M. Byron Lewis and Geoffrey R. Hamlin, Phoenix, for defendant-appellee.

OPINION

GREER, Presiding Judge.

Plaintiff Circie Franko brings this appeal from summary judgment entered in favor of defendant James M. Mitchell on Franko's claims for breach of contract for professional legal services and legal malpractice.

ISSUES

To resolve the appeal, we must determine the following issues: (1) whether there existed genuine issues of material fact concerning the alleged attorney-client relationship between Mitchell and Franko; (2) whether there existed genuine issues of material fact concerning Franko's contention that she was an intended third-party contract beneficiary; (3) whether Franko has a cause of action against Mitchell for legal malpractice; (4) whether Franko's action should be allowed to proceed on a theory of negligent misrepresentation; and (5) whether Franko is eligible for an award of attorney's fees on appeal pursuant to A.R.S. § 12-341.01(A).

FACTS

Because this is an appeal from summary judgment, the facts will be considered in the light most favorable to appellant Franko. State ex rel. Corbin v. Challenge, Inc., 151 Ariz. 20, 725 P.2d 727 (App.1986). Franko and Carl Markoff, Sr. (Markoff) were both single persons at all times relevant to this litigation. Franko first met Markoff before 1982. Beginning in April, 1982, Franko and Markoff began seeing each other on a regular basis and formed a very close, intimate relationship.

In the latter part of 1982, Markoff told Franko that he wanted his own business and needed money for a down payment to buy a bar. Markoff and Franko thereafter often discussed Markoff's desire to own his own bar. During that same period, Franko was in the process of selling her home, and Markoff suggested she lend him some of the proceeds. In her complaint, Franko alleged that during her discussion with Markoff concerning this proposal, Markoff made a number of false representations concerning insurance coverage on his life, his net worth, the amount of his equity in his home, the encumbrances on his home, his obligations to his former wife, the market value of his home, and the amount he would receive from the sale of his home.

Franko first met appellee Mitchell at a delicatessen in Scottsdale while she was having lunch with Markoff. Mitchell came into the delicatessen for lunch, whereupon Markoff introduced Mitchell to Franko as an attorney he knew. Nothing was said at that time concerning any representation of Franko or Markoff by Mitchell.

In March or April of 1983, Franko decided to lend Markoff money so he could make a down payment on a bar. Around June 13, 1983, Franko and Markoff discussed specific terms under which Franko would lend Markoff $30,000 for that purpose. According to Markoff, because he cared for Franko, he told her he wanted her to be protected with regard to repayment of the loan through an insurance policy on his life and an "interest" in the proceeds from the eventual sale of his home. Markoff also told Franko that a lawyer should prepare the loan documentation to provide the protection Markoff wanted Franko to have. Markoff specifically recommended that Mitchell, who Markoff told Franko was "extremely competent to draw up a note for us," should prepare the necessary documentation for the protection of both Markoff and Franko. Because both Franko and her son had faith in Markoff, Franko accepted Markoff's recommendation. Markoff told Franko he would make an appointment with Mitchell on Franko's behalf.

In June 1983, while Franko was not present, Markoff telephoned Mitchell to make an appointment to meet with him. During that conversation, Markoff outlined for Mitchell the terms of the promissory note that Franko and Markoff had discussed. Markoff testified:

Q. Now, when you called Mr. Mitchell a week or so before July 6, was it your intention that you were seeking legal help for both yourself and Circie?

A. No, I wasn't seeking legal help. I was seeking someone to draw up a legal document.

Q. For the protection of both you and Circie?

A. My intentions were to protect her as best I possibly could.

Q. And it was your belief that the attorney that you were recommending to her would serve that purpose, is that correct?

A. I had faith in Mr. Mitchell as being a competent attorney to draw up the document that I needed drawn up.

Q. Did you see Mr. Mitchell in your mind's eye when you talked with him on the telephone that day a week or so prior to July 6 as only being your lawyer and not Circie's lawyer?

A. I didn't see him in the eyes of being anyone's lawyer. I saw him drawing up a document that I needed drawn up.

Markoff also testified:

Q. Did you make ... known to Mr. Mitchell that you had that kind of feeling about Circie, that you wanted to protect her?

A. I didn't discuss my personal relationship with Circie with Mr. Mitchell or anyone other than where it belonged.

....

Q. Now, in your conversation with Mr. Mitchell on the telephone approximately one week or so prior to July 6, did you tell him that the note that you wanted him to draft was intended for the protection of both you and Circie, that you wanted protection for this lady?

A. I don't remember using those specific words to him. I remember asking him to draw up a note for a loan that I was contemplating making that way, someone loaning money that way. And I wanted a note drawn up.

Q. To protect both parties.

A. I don't remember whether I said that directly or not. All I asked him to do is draw up a note in legal phraseology.

Although Markoff testified that it was his own understanding that Franko would be going with him to Mitchell's office when the note was ready for signature, Markoff also testified that he did not recall telling Mitchell or anyone that Franko would be coming with him at that time. Markoff testified "I would assume that from the prior conversations with Mr. Mitchell in drawing up the note, that we would both sign the note at his office."

The escrow on Franko's house closed on July 5, 1983, and she received in excess of $40,000 as a result. That same day, Markoff called Mitchell's office and asked Mitchell's secretary when the note would be ready. Markoff was advised to call back the following morning. The next day, Markoff picked Franko up at her home, and the two drove to Mitchell's office in Scottsdale.

Mitchell, Markoff and Franko met together in Mitchell's office. During that meeting, Mitchell never stated that he was acting as Franko's attorney in connection with preparing the note, but he also never said that he was not. During the discussion, Markoff told Mitchell what he wanted in the promissory note and Mitchell made notes on a legal pad. Markoff told Mitchell he wanted the note to state that Franko was lending him the money, that it would be paid back in a certain way, and that the note should be repaid from the proceeds from the sale of Markoff's house and backed by term insurance on Markoff's life.

Concerning the meeting, Markoff testified:

Q. When you met with [Mitchell] in his office with Circie, did you indicate to him that it was your intention that both you and she be protected with regard to that instrument that was to be signed by you?

A. That was something I discussed with Circie and her son. And I assumed that by drawing up a legal document with reference to the loan between she and I that way, this was our protection. It's a legal document.

Q. Was that, however, discussed in Mr. Mitchell's office with you and she and Mr. Mitchell in attendance?

A. Not to what I can recall that way.

Q. What is it that you recall concerning what you told Mr. Mitchell concerning protection?

A. All I recall is asking him to draw up a legal note and telling him what to put in the note.

At one point during the meeting in his office, Mitchell asked if there was anything else to be put into the note. Franko asked Markoff if he wanted anything else in the note and Markoff said he did not. Franko then told Mitchell she thought that everything had been covered. At another point in the meeting, Mitchell looked directly at Franko and told her that Markoff should set up the monthly premium on the term life insurance so that if Markoff did not pay it, a notice would be sent to Franko so she could pay it to keep the policy in force. Mitchell told her that this would eliminate the possible loss of the insurance.

The promissory note Mitchell prepared provided as follows:

Scottsdale, Arizona

July 6, 1983

$60,000.00

For value received the undersigned hereby promises to pay to Circie Franko, or order, at Scottsdale, Arizona, upon the terms and conditions following, the sum of Sixty Thousand Dollars ($60,000.00) in monthly installments of One Thousand Dollars ($1,000.00) including interest, commencing two (2) months from the date hereof, and continuing until the entire balance has been paid, from the income of 19th Avenue Food and Liquor, provided however, that upon the sale of the residence of the undersigned at 6565 East Shea Boulevard, Scottsdale, Arizona, there shall be paid from the proceeds, to the extent available, the difference between one-half of the face amount of this Note and one-half of the monthly installments theretofore made.

All amounts are payable in legal tender of the United States of America, and undersigned hereby waives notice, presentment and demand and agrees that any forebearance in the event of default shall not thereafter prohibit strict enforcement of this obligation according to its terms.

This Note...