Hyatt Regency Phoenix Hotel Co. v. Winston & Strawn

• Decision Date: 07 March 1995
• Docket Number: CA-CV,No. 1,1
• Citation: 184 Ariz. 120,907 P.2d 506
• Parties: HYATT REGENCY PHOENIX HOTEL COMPANY, a limited partnership (aka HRP Hotel Company); and Nametco Corporation, Barry Shapiro, Lawrence J. Shapiro, Michael S. Haskes, Ben Klimist and Northern Trust Company of Arizona, Personal Representative of these Estates of Sam Shapiro, Deceased, and National Metals Company, an Arizona corporation, Plaintiffs-Appellees, Cross Appellants, v. WINSTON & STRAWN, a law partnership, Defendants-Appellants, Cross Appellees. 92-0133.
• Court: Arizona Court of Appeals

Page 506

907 P.2d 506

184 Ariz. 120

HYATT REGENCY PHOENIX HOTEL COMPANY, a limited partnership (aka HRP Hotel Company); and Nametco Corporation, Barry Shapiro, Lawrence J. Shapiro, Michael S. Haskes, Ben Klimist and Northern Trust Company of Arizona, Personal Representative of these Estates of Sam Shapiro, Deceased, and National Metals Company, an Arizona corporation, Plaintiffs-Appellees, Cross Appellants, v. WINSTON & STRAWN, a law partnership, Defendants-Appellants, Cross Appellees.

No. 1 CA-CV 92-0133.

Court of Appeals of Arizona Division 1, Department D.

March 7, 1995.

Petitions for Review and

Cross-Petition for Review Denied

Dec. 19, 1995. ^*

Reconsideration Denied May 25, 1996

[184 Ariz. 123] Bonn, Luscher, Padden & Wilkins, Chartered by John H. Cassidy, D. Michael Hall, Randall D. Wilkins, Paul V. Bonn and Robert A. Jensen, Phoenix, for plaintiffs-appellees, cross appellants.

Slutes, Sakrison, Even, Grant & Pelander, P.C. by Thomas Slutes, Tucson, and Johnston, Maynard, Grant & Parker by Logan T. Johnston III, Jeffrey C. Brodin, Phoenix, for defendants-appellants, cross appellees.

OPINION

GRANT, Judge.

This appeal and cross-appeal arise from plaintiffs' (collectively "HRP") suit against defendant Winston & Strawn for the legal malpractice of its former partner, Arthur Greenfield. We affirm the judgment for compensatory and punitive damages against Winston & Strawn but reverse part of the trial court's award of credit for partial satisfaction against the judgment.

I. FACTUAL AND PROCEDURAL HISTORY

We view the facts and all inferences in the light most favorable to sustaining the jury verdict and resulting judgment. Bradshaw v. State Farm Mut. Auto. Ins. Co., 157 Ariz. 411, 414, 758 P.2d 1313, 1316 (1988); Rhue v. Dawson, 173 Ariz. 220, 223, 841 P.2d 215, 218 (App.1992).

A. Construction of the Phoenix Hyatt Regency Hotel

HRP was a limited partnership formed to develop the Hyatt Regency Hotel in Phoenix. Its general partners were Samuel Shapiro; his son, Barry Shapiro; two other members of the Shapiro family; two other individuals; and Nametco Corporation, a Shapiro family business.

In December 1973, HRP hired Chanen Construction Company ("Chanen") to serve as the general contractor for the hotel. The contract between HRP and Chanen was an American Institute of Architects Standard Form of Agreement ("the AIA contract"). Chanen was to be paid the cost of the work plus a fee.

The AIA contract protected HRP in several ways. For instance, the agreement did not create any contractual relations between HRP and any subcontractor. Chanen had to indemnify HRP for certain claims arising out of an act or omission of Chanen. Chanen assumed responsibility for the acts of its employees. HRP was not required to pay any money, except as required by law to a subcontractor. Even though the contract was a cost-plus contract, HRP was not required to pay for costs incurred due to Chanen's negligence.

In July 1974, Chanen entered into an Equipment Lease with Form-Eze Systems, Inc. ("Form-Eze"), pursuant to which Form-Eze furnished metal forms and other materials used to build concrete floors in the hotel. Chanen and Form-Eze also entered into a Labor Guarantee Agreement, under which Form-Eze guaranteed that labor costs for the forming operations would not exceed sixty-five cents per square foot. Form-Eze provided a supervisor with expertise in forming operations, and Chanen supplied the laborers. Form-Eze's equipment on the job-site secured the Labor Guarantee Agreement. Chanen did not enter into these agreements as an agent for HRP.

By November 1974, the forming operations fell significantly behind schedule and a dispute arose between Chanen and Form-Eze. Form-Eze claimed that Chanen had breached the Labor Guarantee Agreement by throwing the Form-Eze supervisor off the job. Chanen countered that Form-Eze had breached the Labor Guarantee Agreement and told Form-Eze that Chanen would retain possession of the leased equipment because the labor costs exceeded the guaranteed maximum by more than $200,000. Chanen continued to use Form-Eze's equipment until the hotel's frame and flooring were completed in July 1975. Chanen then delivered the equipment to a storage yard.

B. The Form-Eze Litigation

In July 1975, Form-Eze sued Chanen, HRP and its general partners in Federal District Court for breach of the Equipment Lease and the Labor Guarantee Agreement, and for wrongful retention of Form-Eze's equipment. Inryco, Inc. later intervened, claiming rights to the equipment by virtue of a sale and lease-back agreement it had entered with Form-Eze. Form-Eze and Inryco alleged that Chanen was acting as HRP's appointed agent.

Form-Eze asked Chanen's attorney, Arthur Greenfield, who was then a partner at Snell & Wilmer, to accept service on HRP's behalf. Greenfield asked HRP's Barry Shapiro if HRP would like Greenfield to represent HRP in the matter and accept service on HRP's behalf; Shapiro said yes. Although Greenfield immediately recognized a potential conflict of interest, he never met jointly with Chanen and HRP to discuss the conflict, and he never obtained a waiver of the conflict from Chanen and HRP. Greenfield also never informed HRP that he served on Chanen's board of directors.

Greenfield answered the Form-Eze and Inryco complaints on behalf of Chanen and HRP, erroneously admitting that Chanen was acting as an agent for its disclosed principal, HRP. ¹ Greenfield's defense theory was that neither defendant had breached the Equipment Lease, and that Form-Eze, not Chanen or HRP, had breached the Labor Guarantee Agreement. Chanen and HRP counterclaimed against Form-Eze for $211,528.57 in cost-overruns. Greenfield asserted that, pursuant to the Labor Guarantee Agreement, Chanen and HRP were entitled to continued possession of Form-Eze's equipment as security for the cost-overruns. Greenfield testified that he could ethically represent Chanen and HRP because of unitary interest created by the cost-plus contract with Chanen in that any recovery from Form-Eze would inure to HRP, but any liability to Form-Eze would be borne by HRP. However, Greenfield never explained to HRP its rights under the AIA contract and the claims and defenses HRP was foregoing by virtue of the joint representation with Chanen.

Early in the case, Form-Eze's counsel, Eric Bistrow, discussed with Greenfield how Chanen was Form-Eze's "principal target." Bistrow suggested that because Greenfield's defense theory shifted any potential liability from Chanen to HRP, Greenfield might have a conflict in representing both defendants. Greenfield acknowledged the possibility of a conflict, but later told Bistrow that he had resolved it.

In April 1977, HRP filed for bankruptcy. Greenfield twice wrote to Barry Shapiro and suggested that in light of the pending bankruptcy, HRP should consider retaining separate counsel in the Form-Eze litigation. Greenfield advised Shapiro, however, that he did "not believe there is any conflict in our representation of Chanen along with [HRP] as we have been doing." HRP did not retain separate counsel.

In the Spring of 1978, HRP assigned its expected recovery on the counterclaim to Arizona Title Insurance & Trust Company, the insurer of HRP's defaulted construction loans on the hotel. Arizona Title agreed to advance HRP's attorneys' fees ² to Greenfield's new law firm, Craig, Greenfield & Irwin ("CG & I"). ³ HRP remained liable for any judgment against it arising out of the litigation. Greenfield was aware that even though Arizona Title was paying his fees, he owed a duty to his client, HRP.

On September 6, 1979, Greenfield sent HRP notice that a trial before a Special Master appointed by the District Court was scheduled for later that year. ⁴ Greenfield did not communicate with HRP for another two-and-one-half years. Instead, Greenfield sent status reports, bills and other correspondence concerning the case to Arizona Title.

Greenfield tried the Form-Eze case to the Special Master on March 19-27, 1980. He did not inform HRP that its case was being tried. No HRP witnesses were called, and the AIA contract between Chanen and HRP was not offered as an exhibit. Greenfield offered no evidence on behalf of HRP showing that the retention of the forms was the conduct of Chanen, not HRP. When that issue came up at trial, HRP had no witness to refute the testimony of Chanen's witness that HRP made the decision to retain the forms.

In a post-trial brief, Greenfield argued that Form-Eze could not "hold Chanen liable since it was acting in an agency capacity for a disclosed principal [HRP]." ⁵ In response, Form-Eze reiterated its position that Chanen was primarily liable: "In the event [the court] deems that an election be made as to whether Chanen or the other defendants are liable, it is clear that Chanen is the culpable party under the agreements.... Plaintiff always looked to Chanen because it clearly believed that its contracts were with Chanen."

On December 8, 1980, the Special Master stated his preliminary conclusion that Chanen and HRP were liable because they had breached the Labor Guarantee Agreement. He directed the parties to supply additional briefing. On February 23, 1981, Form-Eze requested a judgment against Chanen and HRP for $3,326,272.10, plus costs and attorneys' fees.

C. Greenfield's Actions After Joining Winston & Strawn

Greenfield became a partner at Winston & Strawn on March 1, 1981, when CG & I merged with the Chicago firm. Greenfield and his Phoenix partners brought their clients and legal business to Winston & Strawn without liquidating CG & I's affairs.

On March 2, 1981, the day after he joined Winston & Strawn, Greenfield filed a brief arguing, inter alia, that Chanen should not be held liable because it was HRP's agent. Greenfield still had not informed HRP that its case had been tried almost a year earlier or of HRP's potential liability.

Greenfield did, however, inform Chanen of these...