Hacker v. Holland

• Decision Date: 30 April 1991
• Docket Number: No. 24A04-9003-CV-126,24A04-9003-CV-126
• Citation: 570 N.E.2d 951
• Parties: Mary HACKER, Plaintiff-Appellant, v. Douglas HOLLAND, Defendant-Appellee. 1 .
• Court: Indiana Appellate Court

Page 951

570 N.E.2d 951

Mary HACKER, Plaintiff-Appellant, v. Douglas HOLLAND, Defendant-Appellee.

No. 24A04-9003-CV-126 ¹.

Court of Appeals of Indiana First District.

April 30, 1991.

Jon R. Pactor, Indianapolis, for plaintiff-appellant.

Michael A. Douglass, Liberty, Douglas C. Holland, Lawrenceburg, for defendant-appellee.

BAKER, Judge.

The primary question before us today is whether, as a condition precedent to filing a legal malpractice suit, a plaintiff must exhaust all possible remedies against the third party whose transactions or occurrences with the plaintiff led to the malpractice claim.

We answer in the negative, and therefore reverse and remand for a new trial.

FACTS

Plaintiff-appellant Mary Hacker contracted to sell a tavern in Aurora to Richard Evans for $75,000. The purchase price included $20,000 for the transfer of the tavern's liquor license. Evans, with Hacker's agreement, retained defendant-appellee Douglas Holland as attorney to handle the closing. Holland had worked for Evans on several previous transactions. Hacker did not retain independent counsel for the transaction.

Holland prepared the closing contract and warranty deed according to Evans's instructions. Evans had paid $5,000 to Hacker prior to closing, and the contract called for a cash payment of $50,000 upon closing with the balance of $20,000 for the liquor license to be paid upon transfer of the license to Evans. The $20,000 balance owing was not secured, and the contract made no provision for interest payable on the balance. After completing an inventory, Evans was also to pay Hacker for the stock and personalty in the tavern: the value of these items totalled $6,000. At the closing, Evans and Hacker each read the contract and Holland read it aloud to both of them prior to signing. Holland's fee for services was $160. Evans paid $80 of the fee and deducted the remaining $80 from the amount he paid to Hacker at the closing.

Evans ultimately paid $10,000 of the $20,000 for the liquor license, $3,000 of the $6,000 for the inventory, and gave Hacker a note for the remaining balance of $13,000. Hacker unsuccessfully attempted to collect the $13,000 balance from Evans, but never brought suit on the note. At the time of trial, neither Hacker nor Holland knew of Evans's whereabouts. There was evidence, however, to the effect that Evans had substantial real property holdings in the Aurora area and that he had a local business associate to whom he had granted a power of attorney.

At trial, Holland presented the expert testimony of a former judge. Over Hacker's objection, the former judge testified that Hacker had not suffered any damages because she had a valid, enforceable contract with Evans. He stated that "what's necessary is to first seek to enforce the obligation against Mr. Evans." Record at 364.

DISCUSSION AND DECISION

At the outset, we note this appeal presents several issues of first impression in Indiana. Accordingly, we have reviewed the case law from our sister jurisdictions, adopting and applying appropriate rules which are in accord with our settled law.

I Expert Testimony

The error mandating reversal stems from the testimony of Holland's expert witness. Like physicians, attorneys are liable for negligence and want of diligence in their practice, Citizens Loan Fund and Sav. Ass'n. of Bloomington v. Friedley, et al. (1890), 123 Ind. 143, 23 N.E. 1075, and the evidentiary rules applicable to medical malpractice actions are generally applicable to legal malpractice actions, as well. Barth v. Reagan (1990), 139 Ill.2d 399, 151 Ill.Dec. 534, 564 N.E.2d 1196, 1199. To prove legal malpractice, expert testimony is normally required to demonstrate the standard of care by which the defendant attorney's conduct is measured. Barth, 564 N.E.2d at 1200; Bross v. Denny (1990), Mo.App., 791 S.W.2d 416, 421, trans. denied; Hughes v. Malone (1987), 146 Ga.App. 341, 345, 247 S.E.2d 107, 111. ²

Experts, however, may not testify as to conclusions of law. Rhine v. Haley (1964), 238 Ark. 72, 83, 378 S.W.2d 655, 662. As our supreme court recently stated in a legal malpractice case, "[i]t is inappropriate for a court to entertain evidence concerning a witness's interpretation of the law." Walker v. Lawson (1988), Ind., 526 N.E.2d 968, 970. Here, the entire thrust of Holland's expert's testimony was that Indiana law required Hacker to sue Evans as a condition precedent to suing Holland, and it was error for the trial court to admit the expert's "interpretation of the law." Id.

The admission of the improper remarks is, of course, subject to the harmless error analysis of Ind.Trial Rule 61. The admission or exclusion of evidence is grounds for reversal only when "the error made by the trial judge relates to a material matter or is of such character as to substantially affect the rights of the parties." Terre Haute First Nat. Bank v. Stewart (1983), Ind.App., 455 N.E.2d 362, 368. Here, there can be no question of either the materiality or the substantial effect of the expert's testimony: the remarks concerned Hacker's ability to maintain her case, and they were a misstatement of the law.

Courts have reached varying results, see R. MALLEN & J. SMITH, Legal Malpractice ch. 16 (3rd ed. 1989), but the consensus is that the status of the underlying claim goes to the question of damages, not to the plaintiff's ability to maintain the malpractice action. In other words, a legal malpractice plaintiff normally need not exhaust all possible remedies as a condition precedent to bringing the malpractice suit. The malpractice damages, however, are mitigated by monies received, or which could be received, whether as a result of a judgment, settlement, or other disposition of the underlying claim. See Theobald v. Byers (1961), 193 Cal.App.2d 147, 13 Cal.Rptr. 864 (defendant attorneys did not have to pay plaintiff the amount of damages plaintiff would have recovered if plaintiff had filed a claim in bankruptcy against the defaulting buyer in a sales transaction); Deaton v. Mason (1980), Colo.App., 616 P.2d 994, 995 (in malpractice action stemming from sale transaction, plaintiff seller had two distinct causes of action: an action on the note against the buyer, and a malpractice action against the attorney); Winter v. Brown (1976), D.C., 365 A.2d 381 (fact that malpractice plaintiff still had valid cause of action against physician did not excuse defendant attorneys' negligence in allowing a cause of action against the physician's employer to expire); Bross, supra, 791 S.W.2d at 419 (defendant attorney's motion to dismiss on grounds of failure to exhaust remedies was properly denied; the question of failure to exhaust "pertains to damages, not whether a cause of action is stated."); Katzenberger v. Bryan (1965), 206 Va. 78, 141 S.E.2d 671 (plaintiff not entitled to double recovery; amount of settlement in underlying case to be reduced from malpractice judgment). ³

In the present case, the rule as discussed simply means Holland bears the usual burden of proving the defense of failure to mitigate damages. The rule does not mean Hacker cannot bring suit against Holland until all avenues of redress against Evans have proven fruitless. Assuming an attorney-client relationship existed between Holland and Hacker, Holland must demonstrate Hacker unreasonably failed to mitigate her damages by seeking recovery from Evans. Persinger v. Lucas (1987), Ind.App., 512 N.E.2d 865, 870. If he succeeds, any damages to Hacker will be reduced by the damages Hacker could have mitigated with a reasonable effort. Hacker, however, was not required to undertake "unreasonable or impracticable" attempts at mitigation. Id.

The trial court, of course, did not rule that Hacker could not maintain her action, but allowed the case to go to the jury. Nonetheless, the improper admission of expert testimony from a former judge stating an incorrect conclusion of law, was prejudicial to the point that Hacker's rights were substantially affected, and the case must be remanded for a new trial in which the expert testimony will conform to the requirements we have set out above. ⁴ We include the following discussion to resolve questions raised by the parties which are likely to arise upon retrial.

II The Plaintiff's Case

Hacker argues an attorney-client relationship existed between Holland and her and that Holland breached his duty of care to her by not securing Evans's debt or providing for interest payments on that debt. Holland counters that he was retained by Evans and was acting solely as Evans's attorney throughout the transaction.

In a negligence action, a plaintiff must show a duty owed by the defendant to the plaintiff, a breach of that duty, and damages to the plaintiff proximately caused by the breach. Hatton v. Fraternal Order of Eagles, Aerie # 4097 (1990), Ind.App., 551 N.E.2d 479, trans. denied. In the context of an action for attorney malpractice, this requires a plaintiff to show employment of the attorney (the duty), the attorney's failure to exercise ordinary skill and knowledge (the breach), and damages to the plaintiff proximately resulting from that failure. Schneider v. Wilson (1988), Ind.App., 521 N.E.2d 1341, 1343. ⁵

The heart of the present case is the question of Holland's status either solely as Evans's attorney, or jointly as Evans's and Hacker's attorney. Duty being the threshold requirement, a plaintiff must first prove the existence of an attorney-client relationship. Id.; Grenz v. Prezeau (1990), Mont., 798 P.2d 112, 116. The relationship need not be express; it may be implied from the conduct of the parties. Fox v. Pollack (1986), 181 Cal.App.3d 954, 226 Cal.Rptr. 532, rev. denied; Zych v. Jones (1980), 84 Ill.App.3d 647, 40 Ill.Dec. 369, 406 N.E.2d 70; Page v. Frazier (1983), 388 Mass. 55, 445 N.E.2d 148. The relationship is consensual, existing only after both attorney and client have consented to its formation. Torres v. Divis (1986), 144...