Kilpatrick v. Wiley, Rein & Fielding

Citation2001 UT 107,2001 Utah 107,37 P.3d 1130
Decision Date14 December 2001
Docket NumberNo. 990784.,990784.
CourtSupreme Court of Utah
PartiesJo-Ann KILPATRICK, George L. Gonzales, Joseph C. Lee, David B. Lee, Marilyn D. Lee, Sidney W. Foulger, Clayton F. Foulger, Bryant F. Foulger, Brent K. Pratt, Mountain West Television Company, a Utah general partnership, and MWT Corporation, a Utah corporation, Plaintiffs and Appellees, v. WILEY, REIN & FIELDING, a professional law partnership, and Richard E. Wiley, Defendants and Appellants.

Harold G. Christensen, Reed L. Martineau, Rex E. Madsen, Richard A. Van Wagoner, Keith A. Call, Salt Lake City, for plaintiff.

Daniel L. Berman, Peggy A. Tomsic, David P. Williams, Salt Lake City, Mark R. Kravitz, Timothy A. Diemand, New Haven, CT, for defendants. DURRANT, Justice:

¶ 1 Plaintiffs brought this legal malpractice action against the law firm Wiley, Rein & Fielding ("Wiley Rein") and against Richard Wiley, senior partner at Wiley Rein. Plaintiffs alleged that defendants represented them from 1981 until 1991 in connection with their efforts to purchase and operate the Channel 13 television station in Salt Lake City and that, during the latter portion of this representation, defendants repeatedly breached fiduciary duties they owed to plaintiffs. Following a lengthy trial, the jury reached a verdict for plaintiffs. Defendants appeal, contending the trial court committed numerous errors requiring reversal. They argue that the trial court incorrectly ruled that, as a matter of law, Wiley Rein had an attorney-client relationship with plaintiffs; that the trial court erred in instructing the jury not only as to their own affirmative defenses, but also as to plaintiffs' theory of the case; that the trial court committed multiple errors in connection with both the apportionment and amount of damages; and that Richard Wiley had no attorney-client relationship with any plaintiff. Plaintiffs bring a conditional cross-appeal alleging that the trial court erred in not ruling that Richard Wiley had an attorney-client relationship with each plaintiff who was also a Wiley Rein client; that the trial court erred in limiting the purposes for which an indemnification agreement was admitted; and that the trial court erroneously excluded the report and testimony of an expert witness as irrelevant. We reverse the jury's verdict and remand for further proceedings.

BACKGROUND

¶ 2 "On appeal from a jury verdict, we view the evidence and all reasonable inferences drawn therefrom in the light most favorable to that verdict." Pratt v. Prodata, Inc., 885 P.2d 786, 787 (Utah 1994). "We present conflicting evidence only when necessary to understand issues raised on appeal." State v. Kruger, 2000 UT 60, ¶ 2, 6 P.3d 1116.

¶ 3 In 1980, the Federal Communications Commission ("FCC") announced it would issue a license for a new VHF television channel in the Salt Lake City area, Channel 13. Barry Wood, a communications attorney with the law firm Kirkland & Ellis, approached David Lee and encouraged him to apply for the license. David Lee approved of the proposed venture, and, in furtherance of that venture, Wood formed Mountain West Television Company (MWT Company), a general partnership consisting of partners David Lee, Joseph Lee (David Lee's father), Jo-Ann Kilpatrick, Sidney Foulger, George Gonzales, Brent Pratt (Sidney Foulger's son-in-law), and Doug Cardon, to apply for the Channel 13 license. Acting on Wood's advice, David Lee, Pratt, and Cardon subsequently withdrew from the partnership.

¶ 4 Wood was retained to assist in the complex process of applying for the license. As part of his representation during the application process, Wood required detailed, confidential information from the remaining MWT Company partners — Joseph Lee, Sidney Foulger, Kilpatrick, and Gonzales (collectively, the "MWT Company partners") — concerning their personal backgrounds, experience, financial limitations, business activities and strategies, strengths and weaknesses, and other matters.

¶ 5 In 1983, several attorneys, including Wood, left Kirkland & Ellis and formed what is now the law firm Wiley, Rein & Fielding.1 At this time, the application process was ongoing. After joining Wiley Rein, Wood continued to represent MWT Company and the MWT Company partners in their efforts to obtain the Channel 13 license. Wood also routed copies of his correspondence with MWT Company and the MWT Company partners, as well as other related documents, to Richard Wiley and John Quale, Wood's supervising partner. By virtue of this representation, MWT Company and the MWT Company partners became Wiley Rein's clients.2

¶ 6 Wood presented the MWT Company partners and other potential investors with several detailed projections to demonstrate the immense value of the Channel 13 license and the future income and distributions stemming from the license. Wood estimated that, when Channel 13 initially went on the air, it would be worth between $30 and $40 million.

¶ 7 Five applicants, including MWT Company, were vying for the Channel 13 license before the FCC. In 1984, Wood represented MWT Company and the MWT Company partners at an FCC evidentiary hearing. Despite the efforts of MWT Company and the MWT Company partners, the FCC awarded the Channel 13 license to another applicant in 1985. MWT Company was ranked second of the five applicants, and Wood advised the MWT Company partners to appeal the FCC decision. The FCC appeal ended in the same result.

¶ 8 After the appeal, Wood was convinced the winning applicant would be willing to sell its position. Under FCC regulations, MWT Company could still obtain the license at this point by buying out each of the other applicants. Accordingly, Wiley Rein encouraged MWT Company and the MWT Company partners to pursue a buyout of each of the other applicants to secure the Channel 13 license. MWT Company and the MWT Company partners elected to pursue this course, and they began to seek a financing partner to aid in buying out the other applicants and constructing and starting the new station to operate as Channel 13.

¶ 9 At this same time, Wiley Rein began representing Adams Communications, which owned several broadcast properties, most notably, KSTU Channel 20, a Salt Lake UHF television station. Because MWT Company planned to compete directly against Channel 20, MWT Company and the MWT Company partners objected to Wiley Rein's representation of Adams. Wiley Rein assured them there was no immediate conflict of interest, and if there ever were, Wiley Rein would not represent either party. Nevertheless, in January of 1986, without plaintiffs' knowledge, Wiley Rein represented Adams in exploring the possible purchase of Channel 13 and sale of Channel 20; however, such a transaction was never completed.

¶ 10 Northstar Communications, Inc., a Delaware corporation primarily owned by Allstate Insurance Company, was created in early 1986 to invest in communications properties. Unbeknownst to MWT Company and the MWT Company partners, Wiley Rein represented Northstar, and Richard Wiley was one of Northstar's two directors. In the spring of 1986, two Northstar officers approached Wood regarding the possibility of acquiring an interest in Channel 13. Wood responded that Wiley Rein was then representing MWT Company in its attempt to secure the Channel 13 license, and if Wiley Rein were to represent Northstar in acquiring an interest in Channel 13, it would have conflicting interests. Accordingly, Wood advised the two Northstar officers to seek other legal counsel in the matter.

¶ 11 In June 1986, Richard Wiley and Quale went to Wood's office to discuss with him the Channel 13 license. They informed Wood that Wiley Rein would represent Northstar in its efforts to acquire an interest in the Channel 13 license. Wood objected, reiterating that such representation would create impermissible conflicts of interest and that Northstar should secure separate counsel. Richard Wiley told Wood, however, that "this is just the start of something that's going to be very big. They [Northstar] have all this money behind them from Allstate," another Wiley Rein client. When Wood continued to object, Richard Wiley stated, "This is Allstate," and urged him to "think of the fees." Wiley Rein ultimately elected to represent Northstar in the Channel 13 matter.

¶ 12 Richard Wiley then instructed Wood to obtain consent from MWT Company and the MWT Company partners. Wood called Joseph Lee and asked him if the MWT Company partners would object to Wiley Rein's representation of Northstar. After discussing the matter with David Lee, Joseph Lee responded that the MWT Company partners objected to the representation. Wood also spoke with Pratt, a former MWT Company partner, asking him if he "had any problem with [Wiley Rein] bringing Northstar into this deal." Pratt voiced no objection, later stating that he understood Northstar would be brought "into this deal" as a financial advisor, not as a Wiley Rein client with interests adverse to MWT Company's. In short, although Wood later testified that he obtained consent from some, but not all, of the MWT Company partners, the MWT Company partners contradicted his testimony, stating that if Wood had disclosed to them the full nature of the conflict, they would have had no further dealings with Wiley Rein.

¶ 13 By late summer of 1986, MWT Company and the MWT Company partners received two commitments for financial aid, which they reviewed with Wood. The first came from Communications Partners, Ltd., and the second was from Northstar. Both Communications Partners and Northstar sent projections and financing offers to Wood, and Wood passed them on to the MWT Company partners. The commitments offered by Northstar and Communications Partners each provided for MWT Company to receive approximately $10 million in funding. In return, MWT Company would give up a sixty percent interest in the Channel 13 venture to the party, either Northstar or...

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