Hurlbert v. Gordon

• Court: Washington Court of Appeals
• Writing for the Court: KENNEDY
• Citation: Hurlbert v. Gordon, 824 P.2d 1238, 64 Wn.App. 386 (Wash. App. 1992)
• Decision Date: 24 February 1992
• Docket Number: No. 25808-7-I
• Parties: Raymond R. HURLBERT, Stephen R. Hammer and Wesley James Hammer, the successors to Gateway Lumber, Inc., Respondents, v. Joseph H. GORDON and Jane Doe Gordon, husband and wife; Charles L. Thomas and Jane Doe Thomas, husband and wife; Albert H. Malanca and Jane Doe Malanca, husband and wife; James E. O'Hern and Jane Doe O'Hern, husband and wife; and E.M. (Sandy) Murray and Jane Doe Murray, husband and wife; and the Partnership doing business as Gordon, Thomas, Honeywell, Malanca, Peterson and O'Hern and all individuals and corporations comprising said partnership, regardless of whether individually named, Appellants.

Page 386

64 Wn.App. 386

824 P.2d 1238

Raymond R. HURLBERT, Stephen R. Hammer and Wesley James Hammer, the successors to Gateway Lumber, Inc., Respondents, v. Joseph H. GORDON and Jane Doe Gordon, husband and wife Charles L. Thomas and Jane Doe Thomas, husband and wife Albert H. Malanca and Jane Doe Malanca, husband and wife James E. O'Hern and Jane Doe O'Hern, husband and wife; and E.M. (Sandy) Murray and Jane Doe Murray, husband and wife and the Partnership doing business as Gordon, Thomas, Honeywell, Malanca, Peterson and O'Hern and all individuals and corporations comprising said partnership, regardless of whether individually named, Appellants.

No. 25808-7-I.

Court of Appeals of Washington, Division 1.

Feb. 24, 1992.

As Amended on Denial of Reconsideration

March 27, 1992.

Review Denied June 30, 1992.

Jeffrey D. Laveson, Bruce Winchell, Wilbur Lawrence, Seattle, for appellants.

Michael D. Helgren, Robert M. Sulkin, Seattle, for respondents.

KENNEDY, Judge.

This is an action for negligence in the execution of professional duties. Appellants, the law partnership of Gordon, Thomas, Honeywell, Malanca, Peterson & O'Hern and the respective marital estates of the individual partners (collectively referred to as Gordon Thomas), appeal the trial court's grant of partial summary judgment to respondents and the court's denial of their motion for summary judgment dismissing the claims of respondents. Because we determine as a matter of law that Gordon Thomas did not breach its duty to the respondents, we reverse the trial court's judgments and remand for entry of judgment in favor of appellants. We also impose a monetary sanction upon respondents' attorneys for egregious violation of RAP 10.3 in the preparation of their brief for this appeal.

FACTS

In 1978, the plaintiffs/respondents Raymond R. Hurlbert, Stephen R. Hammer and Wesley James Hammer, the successors in interest to Gateway Lumber, Inc. (collectively referred to as Gateway), formed Gateway Lumber, Inc., to own and operate a sawmill on leased land in Snohomish County. Later, Gateway offered the sawmill for sale and reached an oral agreement with Brazier Forest Products (Brazier) to sell its sawmill assets to Brazier for $1,000,000. The purchase price was to be paid partly with cash and the remainder by a secured promissory note. After Gateway stated it had no one to prepare the agreement of sale, Brazier offered to have its attorney handle the document preparation and Gateway agreed to this. Gordon Thomas was retained by Brazier to draft the agreement, and William Holt was the attorney who actually consulted with Brazier and who drafted the agreement.

On June 5, 1981, John Brazier (the sole owner of Brazier), Lyle Bare (Brazier'schief financial officer), the owners of Gateway and their bookkeeper Marlene Bennett ¹ met in Ms. Bennett's office to execute the agreement of sale (the Agreement) which had been prepared by Holt. The purchaser and seller reviewed and signed the Agreement on that day. The Agreement stated that the assets were to be purchased with $70,000 by way of down payment and a promissory note for $930,000 at 10 percent interest. The promissory note was to be secured by a "WBA-1A" security agreement on the equipment being purchased. Specifically, the Agreement stated that:

[a]t closing, Purchaser shall deliver to closing agent, a check payable to the closing agent in the amount required for the down payment and an executed Promissory Note, Security Agreement (on Form WBA-1A) and executed UCC Financing Statements on the equipment being purchased.

In trial testimony, both Stephen Hammer and Hurlbert stated that, at the time they signed the Agreement, they believed that this clause gave them a security interest only on the equipment which they were selling to Brazier.

The Agreement did not specify Holt's firm or Holt as the escrow/closing agent, although Holt later assumed that duty. Brazier was instructed by Gateway to prepare and forward closing documents to Ms. Bennett and otherwise to deal directly with Ms. Bennett, who was authorized by Gateway to retain an attorney to review the closing documents. This instruction was passed on by Brazier to Holt.

Ms. Bennett's only explicit instructions from Gateway were to make sure that the deal contained "no loopholes" and to ensure that the deal would provide Gateway with a working sawmill should the Agreement be breached.

Holt, as attorney for Brazier, consulted with Brazier concerning the form of the closing documents. Pursuant to the wishes of Brazier, Holt modified the standard WBA-1A security agreement by "x"ing out the "substitution clause"--that portion of the preprinted form which gave a security interest in all "improvements" or "increases" to the collateral property. Although the effect of the deletion was disputed by experts at trial, one expert witness testified that the effect of this deletion was to remove any security interest in after-acquired property.

In mid-July 1981, Holt sent drafts of the proposed closing documents to Bennett for her review. In his accompanying cover letter to her, Holt made specific comments that the previously existing I.T.T. industrial credit guarantee, the Olympic Bank guarantee and the Olympic Bank security agreement would have to be modified so as not to impair any security which Brazier would need in order to get loans for mill improvements. ² Holt made no mention in the cover letter of the change in the WBA-1A form between Gateway and Brazier. In the same letter, however, Holt also stated that it was his understanding "that you will have Gateway's attorney review and approve these documents."

After reviewing the proposed closing documents, including the altered security agreement, Bennett sent the papers on to Vern Seather, the attorney she had retained on behalf of Gateway. In her letter to Seather dated July 20, 1981, a copy of which was sent to Gateway, Bennett noted that there were changes to the standard forms, and she expressed her general concern that the security interest in the equipment would not be sufficient to protect Gateway in the event of a default.

After reading a copy of Bennett's letter to Seather, Hurlbert, one of Gateway's principals, contacted Bennett, wanting to make sure that Gateway was adequately protected in the event of a default. Shortly thereafter, on July 24, 1981, in response to the concern expressed in her letter to him, Seather wrote to Bennett, stating with respect to the collateral that since paragraph 7 of the standard security agreement form prohibited the removal of collateral without Gateway's permission, the collateral should be sufficient. ³

On July 29, 1981, Bennett called Holt and told him that Gateway's attorney had approved the closing documents which Holt had sent to her. The transaction closed on August 18, 1981, at Gordon Thomas' Tacoma office. Jim Hammer and Stephen Hammer were the only principals representing Gateway at the closing. Stephen Hammer reviewed and signed the closing instructions prepared by Holt and also acknowledged in writing that Holt had represented Brazier in the preparation of "certain documents" and that Gateway had had an opportunity to review the closing documents with legal counsel.

The Hammers then signed the closing documents, including the modified security agreement. When presenting the WBA-1A security agreement for the Hammers' signatures, Holt pointed out a change in paragraph 7 of the document, which change had been made after Bennett's and Seather's review, but he did not point out the change he had made in the substitution clause, i.e. the change which already had been sent to Bennett and approved by Seather.

In December 1981, in the course of remodeling the mill, Brazier began to remove some of the equipment it had purchased from Gateway. Stephen Hammer, who still worked at the mill, became concerned about the removal of these assets. With the assistance of another worker at the mill, Hammer began removing equipment from the mill to use at another mill that his family was constructing.

In November 1983, Gateway sued Brazier, alleging that Brazier had impaired Gateway's collateral securing the note, by removing the collateral from the Arlington mill. Brazier then counterclaimed for theft of some of the collateral by the Hammers. While that suit was pending, Brazier ceased to operate the mill and filed for bankruptcy, at a time when it still owed Gateway $802,644 on the promissory note. Brazier stipulated that the bankruptcy filing constituted a default of Brazier's obligations to Gateway. Gateway received $325,000 in the bankruptcy proceedings, in the form of a secured note which paid 12 percent per annum.

Thereafter, a trial was held on Brazier's counterclaim for theft, and Brazier received a judgment against the Hammers for $113,000.

In 1984, Gateway filed suit against Seather, Bennett and Gordon Thomas, claiming damages for professional negligence. Gateway claimed that but for this negligence, it would have received a security interest in after-acquired property at the mill. Gateway settled with Seather for $300,000 and with Bennett for $155,000.

Gordon Thomas first moved for partial summary judgment on the issue of liability with respect to the alteration of Paragraph 7 of the security agreement (this paragraph governed Brazier's ability to remove equipment from the mill), which was granted. ⁴ Gordon Thomas then moved for summary judgment based upon its claim that as a matter of law it did not breach any duty owed to Gateway. This motion was denied. Later, Gateway moved for partial summary judgment on the issue of breach of duty, and, finding as a matter of law that Holt breached his duty to disclose the change to the substitution clause directly to Gateway at the closing, the trial court granted partial summary judgment to Gateway on this issue.

The issues of proximate cause and damages then went to trial. The jury returned a verdict...