Hendrick v. ABC Ins. Co.

• Decision Date: 15 May 2001
• Docket Number: No. 2000-CC-2349., No. 2000-CC-2403
• Citation: 787 So.2d 283
• Court: Louisiana Supreme Court
• Parties: Rodney HENDRICK v. ABC INSURANCE COMPANY, DEF Insurance Company, XYZ Insurance Company, et al.

787 So.2d 283

Rodney HENDRICK v. ABC INSURANCE COMPANY, DEF Insurance Company, XYZ Insurance Company, et al.

Nos. 2000-CC--CC-2349.

Supreme Court of Louisiana.

May 15, 2001.

Rehearing Denied June 29, 2001.

James A. Brown, Jana L. Grauberger, John M. Wilson, Liskow & Lewis, New Orleans, Counsel for Applicant (No. 00-CC-2349).

James C. Percy, Baton Rouge, Robert R. Percy, III, Timothy E. Pujol, Charles H. Braud, Jr., Richard P. Ieyoub, Baton Rouge, Counsel for Respondent (No 00-CC-2349).

James C. Percy, Baton Rouge, Robert R. Percy, III, Timothy E. Pujol, Baton Rouge, Counsel for Applicant (No. 00-CC-2403).

James A. Brown, Jana L. Grauberger, John M. Wilson, Liskow & Lewis, New Orleans, Charles H. Braud, Jr., Richard P. Ieyoub, Baton Rouge, Counsel for Respondent (No. 00-CC-2403).

KNOLL, Justice.

Before this Court is a legal malpractice claim filed by Rodney Hendrick ("Hendrick") against Stone, Pigman, Walther, Wittmann & Hutchinson, John M. Landis, Randall A. Smith, William E. Brown, and Attorneys' Liability Assurance Society, Inc. (collectively "Stone Pigman"). Based on the record before us and the law, we find that Hendrick's claim against Stone Pigman prescribed under the law in effect before the enactment of LA.REV.STAT. ANN. § 9:5605.¹

FACTS AND PROCEDURAL HISTORY

Hendrick worked for Herb Polk ("Polk"), Hendrick's father-in-law, at Polk's car dealership in Baton Rouge and became involved in a business deal with Polk in South Carolina. Polk, James Fink ("Fink"), Francis Collins ("Collins") and Hendrick formed a corporation named PFC, Inc. d/b/a Stingray Boat Company ("Stingray"). Polk, Fink, and Collins each had a 30% interest and Hendrick had a 10% interest in Stingray when it was formed. The ownership interests changed when additional shares of Stingray were issued at a 1981 shareholders' meeting. Polk's interest increased to 59%, Fink and Hendrick retained their percentage interest at 30% and 10% respectively. Collins' interest, however, was reduced to 1% after the new shares were issued.

Hendrick and Judith Polk were divorced in April 1983. Soon thereafter, Hendrick was replaced on the board of directors of Stingray. Collins filed suit against Hendrick, Polk and Fink in South Carolina and in the Middle District of Louisiana and alleged irregularities and improprieties at the 1981 shareholders' meeting when Collins' interest in Stingray was diluted. See Collins v. PFC, Inc., No. 83-16-570 (S.C. Ct. Com. Pleas, Darlington 1983); Collins v. Polk, 115 F.R.D. 326 (M.D.La.1987). In November 1983, apparently due to the inability of Hendrick and Judith to resolve community property issues in their divorce, Hendrick filed a voluntary petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code in Bankruptcy Court for the Middle District of Louisiana. Donald Starns ("Starns") was appointed the trustee to manage the debtor's estate. In the bankruptcy proceedings, both Starns and Hendrick were represented by counsel. David Rubin ("Rubin") represented Starns, and William Steffes ("Steffes") represented Hendrick. In the course of the bankruptcy proceedings, Starns filed an application with the bankruptcy court seeking authority to sell Hendrick's stock in Stingray.²

The bankruptcy judge conducted an adversarial hearing before deciding whether to approve the proposed sale. Hendrick filed an objection to the sale on the day of the hearing, alleging that the offered price of $150,000 was less than two-thirds the fair market value of the stock and the $150,000 offer was far less than the price paid for Polk's and Collins' stock. Starns, his attorney Rubin, Steffes, Fink, and an attorney for Judith Polk were all present at the hearing. Rubin expressed concerns whether the proposed offer reflected the value for the shares that other shareholders had received, but maintained that the stock sale should be approved. The bankruptcy judge approved the sale. The Bankruptcy Court's order authorized the sale of the Stingray stock "free and clear of all liens, claims, and encumbrances, including any and all alleged co-owner's rights or right of first refusal of Judith Polk Hendrick." This signed order contrasts with a minute entry of February 13, 1985, in which the court directed the trustee to continue to investigate the stock transaction and "bring an action to recover claims on behalf of the estate if any is found to exist." Neither Rubin nor Steffes appealed the order. Neither Rubin nor Steffes filed a motion for clarification to correct the discrepancy between the order and the minute entry. The bankruptcy estate not only received money for the sale, but also was dismissed from all liability associated with the Stingray stock, namely the Collins lawsuit.³ After the hearing, Hendrick's stock was delivered to Fink with the name of the purchaser left blank.

The day after the hearing on the sale, February 14, 1985, Starns filed a supplemental application for authority to employ special counsel to investigate the circumstances surrounding the offer received by the trustee for the purchase of the Stingray stock. Pursuant to a court order, Starns, as trustee for the debtor's estate, hired Stone Pigman as special counsel on April 19, 1985. Stone Pigman was charged with investigating the circumstances related to the sale of Hendrick's Stingray stock and the "institution of any necessary litigation" regarding the matter.

Investigation by Stone Pigman revealed alleged fraud perpetrated by the purchasers of the Stingray stock. Stone Pigman subsequently filed suit on February 12, 1986, and asserted fraud claims under the Racketeer Influenced and Corrupt Organizations Act, the Securities Exchange Act, and state law claims (collectively the "RICO suit"). Stone Pigman not only signed the complaint as attorney for Starns, the trustee, but also as Hendrick's attorney. Defendants in the RICO suit raised defenses of res judicata and collateral estoppel based on Hendrick's failure to appeal the February 13, 1985, order that authorized the sale of the stock. The federal district court hearing the RICO suit advised the parties of its ruling dismissing the RICO suit on December 2, 1988, and issued its written judgment on January 24, 1989. See Starns v. Avent, 96 B.R. 620 (M.D.La.1989),aff'd sub nom. Hendrick v. Avent, 891 F.2d 583 (5th Cir.),cert denied, 498 U.S. 819, 111 S.Ct. 64, 112 L.Ed.2d 39 (1990). The dismissal of the RICO suit on res judicata and collateral estoppel grounds raised questions as to whether counsel involved in the sale of the stock should have appealed or sought clarification of the February 13, 1985 order and whether Stone Pigman should have filed a Rule 60(b) motion⁴ under the Federal Rules of Civil Procedure to insure that the order reserved rights to assert the claims set forth in the RICO suit.

The record shows that Hendrick was intimately involved in the RICO suit and that Stone Pigman kept Hendrick abreast of the posture of the case. Steffes, Hendrick's bankruptcy attorney, was aware that Hendrick attended meetings with Stone Pigman attorneys, was informed of the RICO suit proceedings, and received a copy of the complaint that set forth the RICO claims. Hendrick has a doctorate degree, he taught college courses, and during his tenure as general manager of Polk Chevrolet, the business sold over three thousand new cars per year, over a thousand more cars per year than Hendrick's predecessor had sold. Hendrick had an ongoing attorney-client relationship with Steffes throughout the two year Chapter 11 bankruptcy.

Hendrick received a copy of the federal district court's judgment that dismissed his RICO claim and he discussed the judgment with Stone Pigman. Hendrick testified that Stone Pigman recommended that Hendrick should file appeals to see if "we can get it corrected." Hendrick also spoke to Steffes about the judgment. Steffes was, at that time, representing Hendrick, albeit on another matter. In December 1988, Steffes told Hendrick he had a malpractice claim against Stone Pigman based on a brief conversation with Hendrick in the halls of federal court.

On January 10, 1991, two years after gaining actual knowledge of a potential malpractice claim against Stone Pigman, Hendrick filed this malpractice claim which at that time included Steffes, Rubin, and Stone Pigman.⁵ The trial court dismissed Rubin and Steffes from the suit by granting their exception of prescription. See Hendrick v. ABC Ins. Co., 95-1577 pp. 2-3 (La.App. 1st Cir.6/28/96), 677 So.2d 716, 718, writs denied, 96-2013 & 96-2136 (La.11/8/96), 683 So.2d 271, 272. The trial court held that Hendrick's claim against Stone Pigman had not prescribed and held in favor of Hendrick on the merits finding Stone Pigman 100% at fault. Stone Pigman appealed. The appeal was stayed and the case was remanded to allow Hendrick to amend his petition and argue that the retroactive application of LA.REV.STAT. ANN. § 9:5605 to his claim was unconstitutional. The trial court held that LA.REV.STAT. ANN. § 9:5605 was constitutional but that it did not apply to Hendrick's claim. Rather, the trial court applied the civil code articles regarding liberative prescription.

The appellate court affirmed the trial court on prescription by holding LA.REV. STAT. ANN. § 9:5605 did not apply to Hendrick's claim.⁶ Relying on Marsh Engineering, Inc. v. Parker, 94-1129, p. 11 (La.App. 3d Cir.5/8/96), 688 So.2d 1042, 1048 writ denied, 96-1434 (La.9/27/96), 680 So.2d 637, the appellate court held LA.REV. STAT. ANN. § 9:5605 did not apply to Hendrick's claim because the Legislature did not clearly express its intent that the statute be applied retroactively until the 1992 amendments. Hendrick filed suit in January 1991 before the 1992 amendments; therefore, the Legislature's declaration came too late to bar Hendrick's suit. The appellate court, applying pre-La. Rev. Stat. Ann. § 9:5605 law, held that Stone Pigman's continuous representation of Hendrick...