Kilpatrick v. Wiley, Rein & Fielding

• Citation: 909 P.2d 1283
• Decision Date: 05 January 1996
• Docket Number: No. 940579-CA,940579-CA
• Parties: Jo-Ann W. 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; and MWT Corporation, a Utah corporation, Plaintiffs and Appellants, v. WILEY, REIN & FIELDING, a professional law partnership; and Richard E. Wiley, Defendants and Appellees.
• Court: Utah Court of Appeals

Page 1283

909 P.2d 1283

Jo-Ann W. 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; and MWT Corporation, a Utah corporation, Plaintiffs and Appellants, v. WILEY, REIN & FIELDING, a professional law partnership; and Richard E. Wiley, Defendants and Appellees.

No. 940579-CA.

Court of Appeals of Utah.

Jan. 5, 1996.

Gordon R. Hall, Harold G. Christensen, Reed L. Martineau, Rex E. Madsen, and Richard A. Van Wagoner, Salt Lake City, for Appellants.

Daniel L. Berman, Peggy Tomsic, and Jonathan Hawkins, Salt Lake City, for Appellees.

Before GREENWOOD, JACKSON and WILKINS, JJ.

OPINION

JACKSON, Judge:

Jo-Ann W. Kilpatrick, et al. (plaintiffs) appeal the trial court's grant of summary judgment in favor of Wiley, Rein & Fielding (defendant) and Richard E. Wiley in this legal malpractice action sounding in breach of fiduciary duty. Specifically, plaintiffs argue the trial court applied the wrong standard of causation for legal malpractice claims based on breach of fiduciary duty. Plaintiffs also argue the trial court incorrectly determined that issues of material fact surrounding causation were undisputed. We reverse and remand.

BACKGROUND

This labyrinthine dispute between lawyers and their clients arises from apparent conflicts of interest within a Washington, D.C. law firm. When reviewing summary judgment, we recite the facts in a light most favorable to the nonmoving party. See Harmon City, Inc. v. Nielsen & Senior, 907 P.2d 1162, 1164 (Utah 1995); Higgins v. Salt Lake County, 855 P.2d 231, 233 (Utah 1993).

In the early 1980s, the Federal Communications Commission (FCC) approved a new VHF television station for the Salt Lake City market (Channel 13). Plaintiffs hired defendant, a law firm specializing in communications law, to represent them in their effort to obtain the newly offered license. Upon defendant's advice, plaintiffs formed Mountain West Television Company (MWTC), a Utah general partnership, to apply for the license. From 1981 until 1987, defendant represented MWTC not only in its bid for the Channel 13 license but also in all matters of partnership business.

In 1985, the FCC conducted a comparative hearing of applications for the Channel 13 license. The FCC ranked MWTC second of the five applicants. Upon defendant's advice, MWTC appealed the FCC's decision. The FCC Review Board affirmed the original ranking of applicants for the Channel 13 license. Rather than pursue its appeal further, MWTC decided, again upon defendant's advice, to buy out its four competing applicants. MWTC further decided to seek a financing partner to pay for settlements with the competing applicants and to provide additional financing for the Channel 13 venture.

Also during 1985, Adams Communications (Adams) became defendant's client. Adams owned KSTU, Channel 20, a UHF television station in Salt Lake City. Plaintiffs objected to defendant's representation of Adams. Defendant responded that the firm's representation of Adams did not present an immediate conflict of interest and that, if MWTC and Adams ever had conflicting interests, the firm would not represent either party. Nonetheless, in January 1986, the firm represented Adams in the possible purchase of Channel 13 and sale of Channel 20. Defendant did not disclose that specific representation of Adams to plaintiffs.

Early in 1986, the defendant law firm acquired another client interested in the Salt Lake City communications market--Northstar Communications (Northstar). Northstar was principally owned by Allstate Insurance Company (Allstate) and was formed to invest in broadcast communications properties. Northstar became defendant's client upon Northstar's inception. Richard E. Wiley, the senior partner of the defendant law firm, sat on Northstar's board of directors. Shortly after its formation, Northstar expressed an interest in the acquisition of Channel 13. Defendant recognized a conflict of interest in representing Northstar in its efforts to acquire Channel 13 because of its long-time representation of MWTC. However, defendant thought it appropriate to introduce Northstar directors to the MWTC partners. During the spring of 1986, defendant continued to represent MWTC, including representation at several conversations concerning Northstar's potential buy-out of MWTC's competing applicants for the Channel 13 license and investment in the television station.

In June 1986, senior partners of the defendant law firm announced defendant would represent Northstar in the Channel 13 matter and the negotiation of its agreement with MWTC. Defendant was concerned that if Northstar were required to secure separate counsel in this particular matter, Northstar might take all its business to another law firm. Although MWTC was a long-time client, Northstar was the more lucrative client. The law partner principally responsible for MWTC's representation objected to the firm representing anyone entering into a deal with MWTC. MWTC's principal attorney maintained defendant could not ethically represent Northstar in the Channel 13 matter because of the firm's long-time representation of MWTC. Senior partners in the defendant law firm directed MWTC's principal attorney to obtain MWTC's consent for the firm's representation of Northstar.

MWTC's principal attorney telephoned some of the MWTC partners to request their consent to the defendant law firm's representation of Northstar. At least one of the MWTC partners refused to consent, and two of the MWTC partners were never contacted. Defendant did not seek or ever obtain written consent from MWTC for its representation of Northstar. Defendant never disclosed to MWTC the nature and extent of its representation of Northstar. Defendant did not fully explain to MWTC the implications, the risks, or the effects of its representation of Northstar. Although MWTC became aware of a connection between defendant and Northstar, MWTC was not aware of the extent or consequences of the defendant law firm's conflict of interest. MWTC ultimately believed defendant would represent its interests exclusively and loyally as defendant had done during the previous five years, including MWTC's early negotiations with Northstar.

After failing to obtain consent from MWTC to represent Northstar in the Channel 13 matter, defendant continued to represent MWTC. Defendant apparently represented Northstar simultaneously in the same matter. As counsel to MWTC, defendant worked to negotiate financing for the buy-out of MWTC's competing applicants, to obtain the Channel 13 license, and to put the station in operation. Communications Partners Limited (CPL), one of the potential investors in Channel 13, presented MWTC a financing proposal. CPL committed ten million dollars to MWTC in exchange for sixty percent interest in its Channel 13 venture. Northstar made a very similar financing proposal to MWTC: the basic exchange was ten million dollars for sixty percent interest in the station. Defendant reviewed the financing proposals from CPL and Northstar and then advised MWTC to accept Northstar's offer.

After accepting Northstar's ten-million-dollar commitment and rejecting CPL's commitment on behalf of MWTC, defendant negotiated agreements to buy out MWTC's competing applicants for Channel 13. These agreements, drafted by defendant, called for MWTC to buy out its competing applicants for five million dollars and personally obligated the MWTC partners to pay three of the five million dollars, regardless of whether Northstar's ten-million-dollar commitment was ever realized.

Sometime during the summer of 1986, some of the MWTC partners contacted Ralph Hardy, a communications attorney with the law firm of Dow, Lohnes & Albertson, seeking advice concerning financial issues relating to Channel 13. Hardy's law firm billed MWTC for legal services beginning July 15, 1986. Hardy's initial efforts apparently were on behalf of only some of the MWTC partners and were limited to financial advice regarding the financing proposals from potential Channel 13 investors. Through the summer and fall of 1986 MWTC continued to rely on defendant as its legal counsel in the Channel 13 matter. Although the MWTC partners understood Hardy was a financial consultant, they did not consider Hardy to be MWTC's attorney.

In November of 1986, after defendant had prepared agreements for the buy-out of MWTC's competing applicants, defendant simultaneously represented both Northstar and MWTC in preparing an agreement for the Channel 13 venture between Northstar and MWTC. Northstar and MWTC formed a Utah limited partnership known as Mountain West Television Limited (MWT Ltd.). However, several terms of the MWT Ltd. agreement were contrary to the deal to which MWTC previously had agreed. For example, Northstar reduced its original ten-million-dollar commitment to seven million dollars. Additionally, MWT Corporation, a Utah corporation composed of the MWTC partners, would serve as general partner of MWT Ltd. for a short time. Northstar eventually would become general partner with complete control of the station's management, and MWT Corporation would become only a limited partner.

Once the new and unexpected terms of the MWT Ltd. agreement became known to MWTC, MWTC had protracted discussions with Northstar across three days. These meetings were held at defendant's Washington, D.C. office. Three of the four MWTC partners remained in Salt Lake City. Although Hardy acted as an advisor for the MWTC partner who was present at the meetings, MWTC continued to look to defendant as its attorney. It was at these meetings that MWTC first learned defendant was simultaneously representing Northstar in the same matter. MWTC acquiesced to the new and unexpected terms of the MWT Ltd. agreement in part because MWTC was liable to the competing Channel 13 applicants for a two-million-dollar payment due on the...