Hyden v. Law Firm of McCormick, Forbes, Caraway & Tabor

• Decision Date: 12 January 1993
• Docket Number: No. 12916,12916
• Citation: 115 N.M. 159,1993 NMCA 8,848 P.2d 1086
• Parties: Ross Sterling HYDEN, Plaintiff-Appellant, v. The LAW FIRM OF McCORMICK, FORBES, CARAWAY & TABOR, a New Mexico partnership; J.W. Forbes, individually; and Cas Tabor, individually, Defendants-Appellees.
• Court: Court of Appeals of New Mexico

Page 1086

848 P.2d 1086

115 N.M. 159

Ross Sterling HYDEN, Plaintiff-Appellant, v. The LAW FIRM OF McCORMICK, FORBES, CARAWAY & TABOR, a New

Mexico partnership; J.W. Forbes, individually;

and Cas Tabor, individually, Defendants-Appellees.

No. 12916.

Court of Appeals of New Mexico.

Jan. 12, 1993.

Certiorari Denied Feb. 16, 1993.

[115 N.M. 161] Perry C. Abernethy, Marek & Yarbro, P.A., Carlsbad, for plaintiff-appellant.

Robert E. Sabin, Jeffery D. Tatum, Atwood, Malone, Mann & Turner, P.A., Roswell, for defendants-appellees.

OPINION

PICKARD, Judge.

Plaintiff sued defendants for legal malpractice. The trial court granted summary judgment to defendants, and plaintiff has appealed. The issue before us is whether summary judgment was improperly granted. In making this decision, we are also called on to decide the subsidiary issues of whether the trial court correctly applied collateral estoppel against plaintiff based on proceedings in an earlier lawsuit, and whether in doing so the trial court erroneously considered two affidavits from the presiding judge in the underlying case. We reverse.

The genesis of the case before us lies in an earlier suit for breach of contract, fraud, and negligent misrepresentation. The parties to the earlier suit were plaintiff, who owned an automobile dealership, and Scott Tubb, who contracted to buy the dealership. Tubb and his father initiated discussions with plaintiff for the purchase of the dealership in March 1985. The elder Tubb had previously approached plaintiff on several occasions in 1982-83 about selling the dealership, but no sale agreement resulted during that time. In 1985, when sale discussions resumed, the Tubbs asked for financial data, which plaintiff provided. The parties reached a general understanding and agreement on the sale of the business. The Tubbs asked defendant Cas Tabor, an attorney with the defendant law firm, to draft the written contract for purchase and sale of the dealership. At the time, plaintiff had had a fifteen-year attorney-client relationship with the law firm, which regularly represented him primarily through the person of its senior partner, defendant J.W. Forbes.

Tabor recognized the potential conflict of interest involved in drafting the contract for the Tubbs in light of the firm's prior relationship with plaintiff, and he consulted briefly with Forbes on the propriety of taking on the work at the request of the Tubbs. Forbes encouraged Tabor to undertake the representation in order to enhance the likelihood that the firm could maintain the automobile dealership as a client after Tubb purchased it. Tabor proceeded to represent the Tubbs in the purchase of the dealership.

After Tabor had prepared the first two drafts of the contract, Scott Tubb asked Tabor to include language imposing warranty obligations on plaintiff with respect to the financial statements provided to Tubb. When Forbes discovered the warranty language in a draft of the agreement, he contacted plaintiff and asked whether plaintiff could in fact warrant the financial information. Plaintiff communicated his uncertainty to Forbes about doing so, and Forbes told plaintiff that he was going to change "that language." However, other warranty language was retained in the final agreement, and, according to plaintiff, defendants failed to advise him of the risks involved in their dual representation of him and Tubb. Plaintiff also contends that defendants failed to explain what misrepresentation entails or the extent of his exposure for any misrepresentations he might have made. Cf. First Nat'l Bank v. Diane, Inc., 102 N.M. 548, 553, 698 P.2d 5, 10 (Ct.App.1985) (recognizing attorney's duty to warn client of potential liability and exposure under existing law).

The purchase price for the dealership was $920,000. Under the final agreement, Tubb made a partial payment, which purchased 49% of the stock in the business, and obtained an option to purchase the remaining 51% at a later date. After the final agreement but before exercising that option, Tubb discovered that some of the financial records provided by plaintiff during sale negotiations were inaccurate. Tubb sued plaintiff based on the warranty language. That language required plaintiff to warrant the accuracy of financial information and held him liable for any inaccuracies discovered within two years of the sale. Tubb sought either rescission or damages.

The matter of Tubb versus plaintiff was tried in the district court of Eddy County by Judge Harvey W. Fort without a jury. The defendant law firm represented plaintiff throughout pretrial proceedings and on the first day of trial. After that, Forbes and the firm were disqualified as counsel in order to become witnesses in the case, and new counsel assumed plaintiff's representation. After hearing evidence and argument of counsel, Judge Fort orally denied Tubb's demand for rescission, noting that Tubb had allowed the business to deteriorate during the tenure of his management. Judge Fort similarly found fault with plaintiff, indicating his intent to find that plaintiff knew or should have known about the inaccuracy of the financial documents and that he negligently failed to divulge the information to Tubb. No findings of fact or conclusions of law were ever requested by the parties or entered. Reduced to its essential terms, the written judgment filed after trial on January 31, 1987, provides that (1) "[t]he * * * total consideration of Nine Hundred Twenty Thousand Dollars ($920,000.00) should be reduced to Six Hundred Twenty-One Thousand Dollars ($621,000.00)"; (2) the reduced sum constitutes a complete resolution of all the disputes between the parties arising out of the contract; and (3) Tubb owed plaintiff a total of $621,000 for 100% of the stock in the dealership. No punitive damages were assessed against plaintiff, and each party was ordered to pay his own costs, expenses, and attorney fees. Plaintiff accepted payment from Tubb, and neither party appealed in that case.

Judge Fort retired from the bench on December 31, 1988. After plaintiff filed his complaint in this case, defendants obtained two affidavits from Judge Fort. In the first affidavit, dated April 25, 1989, Judge Fort stated that his decision in the underlying case was not based on the terms of the contractual provisions between the parties, but rather upon his conclusion that plaintiff had defrauded Tubb, and that Judge Fort was prepared to make such a finding based upon clear and convincing evidence. In the second affidavit, dated July 9, 1990, Judge Fort asserted that after a full trial on the merits, he made an oral finding of fact that "[t]he purchase price that a willing buyer would have paid a willing seller if the true facts about the dealership's finances had been disclosed was $621,000.00." He also concluded in the affidavit, based on his oral findings, that plaintiff was liable to Tubb for misrepresenting the finances of the dealership in the amount of the difference between the contractual price of the dealership and the actual value, i.e., "the amount that a willing buyer would have paid a willing seller if the true facts about the dealership's finances had been disclosed."

These affidavits; two affidavits from plaintiff's expert, attorney Barry H. Barnett; and other deposition and documentary evidence were before Judge Ralph W. Gallini, who entered summary judgment for defendants and dismissed plaintiff's complaint with prejudice. Judge Gallini based his ruling primarily upon a determination that the fair market value of the business was ascertained by Judge Fort and that plaintiff was not entitled to relitigate that determination. The briefs do not reveal why Judge Gallini granted summary judgment as to plaintiff's other claims for damages. In fact, defendants have informed us that they do not oppose a remand for trial to determine whether their services fell below the standard of competence and loyalty, and if so, whether that was the proximate cause of expenses incurred by plaintiff in the prior suit or of plaintiff's increased allergies due to stress. Furthermore, in order to avoid a factual dispute on this point, defendants have disclaimed, both below and on appeal, any reliance on Judge Fort's statement in his first affidavit that he was prepared to make a finding that plaintiff defrauded Tubb. Defendants have stated that they are only relying on Judge Fort's oral "finding" that plaintiff was guilty of negligent misrepresentation.

To recover on a claim of legal malpractice based on negligence, a plaintiff must prove three essential elements: (1) the employment of the defendant attorney; (2) the defendant attorney's neglect of a reasonable duty; and (3) the negligence resulted in and was the proximate cause of loss to the plaintiff. George v. Caton, 93 N.M. 370, 373, 600 P.2d 822, 825 (Ct.App.1979); see also Sanders v. Smith, 83 N.M. 706, 709, 496 P.2d 1102, 1105 (Ct.App.1972). As to the second element, a plaintiff must show, usually through expert testimony, that his or her attorney failed to use the skill, prudence, and diligence of an attorney of ordinary skill and capacity. Collins ex rel. Collins v. Perrine, 108 N.M. 714, 717, 778 P.2d 912, 915 (Ct.App.1989); Diane, Inc., 102 N.M. at 552, 553, 698 P.2d at 9, 10; Rodriguez v. Horton, 95 N.M. 356, 359, 622 P.2d 261, 264 (Ct.App.1980). Plaintiff does not deny that a misrepresentation occurred in the sale of the dealership. Rather, the crux of plaintiff's claim is that it was defendants' malpractice in representing him that proximately caused plaintiff to be sued by Tubb, and that as a result he incurred an unfavorable judgment on the contract, attorney fees, interest, loss of profits, earnings, business opportunities, and an option on a home, as well as personal injuries, mental distress and anxiety, and tax liabilities.

The principles guiding the determination of whether summary judgment was properly granted in...