Hendry v. Pelland

• Decision Date: 05 March 1996
• Docket Number: Nos. 94-7082,94-7083 and 94-7084,s. 94-7082
• Citation: 315 U.S. App. D.C. 297,73 F.3d 397
• Parties: , 64 USLW 2543 Anne P. HENDRY, et al., Appellants, v. Francis J. PELLAND and Sadur, Pelland & Rubinstein, P.C., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 397

73 F.3d 397

315 U.S.App.D.C. 297, 64 USLW 2543

Anne P. HENDRY, et al., Appellants, v. Francis J. PELLAND and Sadur, Pelland & Rubinstein, P.C., Appellees.

Nos. 94-7082, 94-7083 and 94-7084.

United States Court of Appeals District of Columbia Circuit.

Argued Nov. 14, 1995.

Decided Jan. 19, 1996.

Rehearing Denied March 5, 1996.

Ernest S. Hendry, Jr., appearing pro se, argued the cause, for appellants, with whom Anne P. Hendry and Judith V. Hendry, appearing pro se, were on the brief.

Ellen G. Draper, argued the cause, for appellees, with whom Joel M. Savits, Francis J. Pelland and Joel S. Rubinstein were on the brief.

Before: GINSBURG, ROGERS and TATEL, Circuit Judges.

Opinion for the court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

Three clients sued their former attorney and his law firm for breach of fiduciary duty, seeking punitive damages, compensatory damages, and disgorgement of the legal fees they had paid. The attorney's law firm counterclaimed for unpaid legal fees. Applying District of Columbia law, we address three district court rulings made during the jury trial. First, because we agree with the district court that the record contained insufficient evidence for a reasonable jury to find that the attorney wilfully disregarded his clients' rights, we affirm the judgment denying the clients' request for punitive damages. Second, concluding that clients seeking disgorgement of legal fees for a breach of their attorney's fiduciary duty of loyalty need only prove that their attorney breached that duty, not that the breach injured them, and finding that the clients here presented sufficient evidence for a jury to conclude that their attorney breached his duty of loyalty, we set aside the district court's judgment for the lawyer and his law firm on the fiduciary duty claim. Finally, because the clients had a valid claim for breach of fiduciary duty, we set aside the court's ruling precluding them from using that breach as a defense to the law firm's counterclaim for unpaid fees. We therefore remand for a new trial on the clients' breach of fiduciary duty claim and the law firm's counterclaim for legal fees.

I.

Five members of the Hendry family--the mother, her son and daughter, and the daughter's two infant children--owned an historic twenty-acre parcel of land in Arlington County, Virginia as tenants in common. The adult owners of the property, as well as the spouses of the son and daughter, who held rights of dower and curtesy, signed an agreement to sell the property for $4.5 million to a developer who planned to build a retirement home on the land. According to the agreement, if county officials failed to approve zoning changes needed to build the retirement home, the parties would undertake "good faith" negotiations to restructure the transaction. When county officials turned down the retirement home project, the developer proposed amending the agreement to provide for the construction of a 56-unit residential development. Under the proposed amendment, the $4.5 million price was unchanged. Although the son told the developer that he objected to the proposed amendment, his mother and the developer signed the amendment while the son was away on vacation.

Discovering what his mother had done, the son and his wife retained Francis Pelland, a partner in the Washington, D.C. law firm of Sadur, Pelland & Rubinstein. The son explained to the lawyer that he was opposed to the residential development and concerned about his mother's mental capacity. Relying on the agreement's "good faith" clause, Pelland advised his clients not to oppose the residential development. Although the county ultimately approved the site plan for the residential development, all of the owners--now including the mother--refused to sell. Claiming breach of contract and unjust enrichment, the developer sued them in a Virginia state court.

While Pelland originally represented only the son and his wife, he represented all the owners of the property in defending the lawsuit. At a conference shortly before trial, the presiding judge told the parties that although the developer's contractual claims were meritless, the unjust enrichment claim had merit because the developer's efforts in securing county approval of the residential site plan increased the value of the Hendrys' property. He advised the litigants to negotiate a settlement on the unjust enrichment claim. Following Pelland's advice, the family settled with the developer for $1.5 million.

Unhappy with this result, three of the clients--the mother, the son, and his wife--sued Pelland and his law firm in the United States District Court for the District of Columbia based on diversity of citizenship, claiming both professional negligence and breach of fiduciary duty. The Hendrys sought identical relief on both claims: punitive damages; $2,069,000 in compensatory damages (representing the $1.5 million settlement plus amounts for interest, additional property taxes, and remodeling costs); and return of $86,538.62 in legal fees they had paid. The law firm counterclaimed for $37,504.38 in unpaid legal fees.

Determining that District of Columbia law governed the Hendrys' claims against Pelland and his law firm, the district court issued the three rulings that are before us in this appeal. After the Hendrys presented their case-in-chief, the district court granted Pelland's motion for judgment as a matter of law on punitive damages, explaining that "the evidence that has been presented in this case to date by no stretch of the imagination--at least my imagination--would warrant submitting the issue of punitive damages to this jury." At the close of all the evidence, the court granted Pelland's motion for judgment as a matter of law on the breach of fiduciary duty claim for compensatory damages and disgorgement of legal fees, finding that the Hendrys had failed to present any evidence as to the applicable standard of conduct. Finally, because the Hendrys no longer had a claim for breach of fiduciary duty, the court prohibited them from arguing breach of fiduciary duty as a defense to the law firm's counterclaim for legal fees. Accordingly, only the Hendrys' negligence claim (minus their request for punitive damages) and the law firm's counterclaim for legal fees went to the jury. The Hendrys lost on both counts. Entering judgment for Pelland and his law firm, the court awarded the firm its unpaid legal fees.

The Hendrys moved for a new trial on their fiduciary duty claim and the counterclaim for legal fees. Acknowledging that, contrary to its ruling at trial, the Hendrys had indeed presented sufficient evidence to establish that Pelland breached his fiduciary duty, the court nonetheless denied the motion for a new trial. Explaining that the jury's verdict on the negligence claim showed that the Hendrys' entire lawsuit was without merit, the district court ruled that they were not sufficiently prejudiced to be entitled to a new trial on either the fiduciary duty claim or counterclaim.

The Hendrys now appeal the district court's three rulings during trial and the denial of the motion for a new trial. Because we set aside the court's rulings during trial on the fiduciary duty claim and the counterclaim, thus entitling the Hendrys to a new trial on these claims, we need not address the district court's denial of the motion for a new trial.

II.

We can affirm the district court's rulings only if we find "no legally sufficient evidentiary basis for a reasonable jury to find for" the Hendrys under applicable District of Columbia law. Fed.R.Civ.P. 50(a)(1). We review the district court's rulings de novo, considering the evidence in the light most favorable to the Hendrys and making all reasonable inferences in their favor. See Mackey v. United States, 8 F.3d 826, 829 (D.C.Cir.1993).

We agree with the district court that a reasonable jury could not have awarded punitive damages on the basis of the evidence presented at trial. Whether clients sue their attorney for professional negligence or breach of fiduciary duty, District of Columbia law allows punitive damages only if the attorney acted with "fraud, ill will, recklessness, wantonness, oppressiveness, [or] willful disregard of the [clients'] rights." Dalo v. Kivitz, 596 A.2d 35, 41 & n. 15 (D.C.1991) (quoting Washington Medical Ctr., Inc. v. Holle, 573 A.2d 1269, 1284 (D.C.1990)) (internal quotation marks omitted). At trial, the Hendrys maintained that they were entitled to punitive damages because the attorney was not "well advised" on certain points of law, that he did not "properly protect" the mother during discovery, and that he ignored advice from a legal assistant during settlement negotiations. Like the district court, we cannot imagine how these allegations could support punitive damages. If true, the Hendrys' allegations may well suggest that Pelland acted imprudently or incompetently, but they fall far short of showing the blatant wrongdoing necessary for a jury to infer that he acted either with deliberate malice or conscious disregard of his clients' rights. See, e.g., Brown v. Coates, 253 F.2d 36, 40 (D.C.Cir.1958) (finding punitive damages appropriate when real estate broker "executed a carefully planned and cleverly concealed method" to deprive homeowners of equity in their property); Wagman v. Lee, 457 A.2d 401, 405 (D.C.) (upholding award of punitive damages where attorney, acting as escrow agent for one potential purchaser of a house, used that person's deposit to enable another person to buy the house), cert. denied, 464 U.S. 849, 104 S.Ct. 158, 78 L.Ed.2d 145 (1983).

Turning to the principal question before us--whether the district court erred in granting judgment to Pelland and his law firm on the Hendrys' claim for breach of fiduciary duty--we begin by noting the limited nature of the parties' arguments on appeal. First, in challenging the judgment, the Hendrys contend only that the...