Krutzfeldt Ranch, LLC v. Pinnacle Bank

• Decision Date: 28 February 2012
• Docket Number: No. DA 11–0213.,DA 11–0213.
• Citation: 2012 MT 15,363 Mont. 366,272 P.3d 635
• Parties: KRUTZFELDT RANCH, LLC, a Montana Limited liability company, William J. Krutzfeldt, and Julie A. Krutzfeldt, Plaintiffs and Appellants, v. PINNACLE BANK, a Wyoming corporation, Defendant and Appellee.
• Court: Montana Supreme Court

2012 MT 15
272 P.3d 635
363 Mont. 366

KRUTZFELDT RANCH, LLC, a Montana Limited liability company, William J. Krutzfeldt, and Julie A. Krutzfeldt, Plaintiffs and Appellants,
v.
PINNACLE BANK, a Wyoming corporation, Defendant and Appellee.

No. DA 11–0213.

Supreme Court of Montana.

Argued and Submitted Dec. 13, 2011.Decided Jan. 31, 2012.Rehearing Denied Feb. 28, 2012.

[272 P.3d 638]

Donald L. Harris (argued); Harman, Warren, & Harris, PLLP; Billings, Montana, for Appellants.

Alan C. Bryan, Peter F. Habein (argued), Jeffery J. Oven; Crowley Fleck, PLLP; Billings, Montana, for Appellee.

Justice BETH BAKER delivered the Opinion of the Court.

[363 Mont. 367] ¶ 1 Appellants Krutzfeldt Ranch, LLC, William Krutzfeldt, and Julie Krutzfeldt (collectively “Krutzfeldts”) appeal the Thirteenth Judicial District Court's order denying their motion to disqualify and to permanently enjoin the Crowley Fleck law firm from representing Appellee Pinnacle Bank in this action. We reverse.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 2 In June 2008, the Krutzfeldts and Pinnacle Bank entered a loan [363 Mont. 368] agreement in which the Bank agreed to lend the Krutzfeldts $5 million to develop a subdivision in Billings, Montana. Pinnacle Bank retained the Crowley Fleck law firm (“Crowley”) to represent it in connection with the transaction. In August 2009, Pinnacle Bank refused to disburse further funds under the loan, asserting the Krutzfeldts had not satisfied certain obligations under the agreement. In February 2010, the Krutzfeldts, represented by Don Harris, sued Pinnacle Bank alleging breach of contract, breach of the covenant of good faith and fair dealing, and fraud. Crowley continued to represent Pinnacle Bank in the litigation.

¶ 3 In June 2010, Harris retained attorney Lance Hoskins of Brekke & Hoskins, PLLC, to advise Harris and the Krutzfeldts on issues concerning liability, settlement, and tax ramifications of their case against the bank. Harris had retained Hoskins in a previous matter for advice on potential settlement and verdict options to prevent exposing Harris's clients to unnecessary tax liability. In the previous case, Hoskins drafted portions of the settlement agreement at the conclusion of the suit. Harris stated that Hoskins's involvement in that matter, while dormant for intermittent and lengthy periods, ultimately extended over several years of litigation.

[272 P.3d 639]

¶ 4 Prior to retaining Hoskins in the Krutzfeldts' suit, Harris informed Hoskins that Pinnacle Bank was represented in the litigation by Jeff Oven of Crowley. Harris provided Hoskins with the pleadings, motions and briefs that had been filed and also discussed with Hoskins his view of the Krutzfeldts' liability claims and Pinnacle Bank's defenses. Hoskins was not disclosed as an expert to Pinnacle Bank or Crowley. On July 13, 2010, Hoskins sent Harris an e-mail that addressed liability issues and indicated Hoskins had conducted some preliminary research on the tax issues. Hoskins stated, “I have some theories that may have some merit after further research. I hate to scorch the earth yet. Let's talk via phone or in person.”

¶ 5 On July 19, 2010, Harris and Mr. Krutzfeldt met with Hoskins and discussed the liability claims, defenses, damages, settlement options, and the results of Hoskins's initial tax research. Both Harris and Mr. Krutzfeldt understood that Hoskins would provide assistance as needed, such as drafting appropriate language for a settlement or verdict form. Harris advised Hoskins the trial date was set for February 28, 2011, and a settlement conference would take place in late 2010 or early 2011.

¶ 6 On July 21, 2010, Hoskins sent Harris an engagement letter which set forth the terms of Hoskins's work. The document appeared to be a standard engagement form and indicated the continuing nature of [363 Mont. 369] Hoskins's involvement in this matter:

Thank you for asking Brekke & Hoskins PLLC (the “Firm”) to represent and advise your firm regarding income tax issues for Butch Krutzfeldt discussed below. Because clear and timely communication is important for serving clients well, we want to begin by stating certain mutual understandings about our services and charges.

Services. Our engagement is to assist your firm in reviewing income tax issues related to Butch Krutzfeldt's lawsuit against Pinnacle Bank and for such other matters as are agreed to in the future....

Completing Our Services. We intend and expect to complete our services to your satisfaction. However, we will withdraw from representation if so requested by you. We may also withdraw if our fees are not paid timely or for a reason required or permitted by professional rules. At the conclusion of representation you may have on request a copy of any client files or papers, for which we would charge a reasonable copying cost. [Emphasis added.]

We appreciate the opportunity to be of service. If you have any questions about our services, or the fee and billing arrangements, please contact me.

The engagement letter did not state Hoskins's representation had concluded with the meeting held days earlier. Although not offered into evidence, the parties agreed the letter was sent with a bill of $2,375.00 for Hoskins's services thus far in the Krutzfeldt case. Both parties acknowledged the document did not say “final bill” or otherwise indicate Hoskins had completed his services in the matter.

¶ 7 On December 20, 2010, the parties conducted a settlement conference. Harris called Hoskins more than once the week before the conference and left a message informing Hoskins his help would be necessary if the parties neared resolution of the lawsuit. Hoskins did not return the call. The case did not settle and his expertise was not required at that juncture.

¶ 8 On January 5, 2011, Harris received a “Dear Client” letter from Brekke & Hoskins announcing that the two partners had joined Crowley effective January 1, 2011. The letter stated, “[w]e feel we will be more responsive and efficient to your needs and the ever changing tax and regulatory world by utilizing the resources that Crowley Fleck has to offer.” Hoskins had not mentioned to Harris and the Krutzfeldts his plans to take the position with Crowley, nor did he take any steps formally to terminate his representation pursuant to M.R. Pro. C. 1.16.

¶ 9 Upon receiving the letter, Harris called Crowley to inform Oven of [363 Mont. 370] the conflict. On January 7, 2011, at 3:16 p.m., Harris sent Oven an e-mail stating the conflict could not and would not be consented to or waived, and Crowley thus would need to withdraw as counsel for Pinnacle Bank. Harris asked

[272 P.3d 640]

Oven to notify him if Crowley voluntarily would withdraw, or if Harris would need to file a Motion to Disqualify. Crowley responded by letter that same day, stating, “[p]ursuant to Rule 1.10(c), we have established an ethical screen” to prevent both Hoskins and Brekke from having any involvement in the Krutzfeldt case or receiving any fee earned by the firm in that matter. The letter enclosed an e-mail Crowley sent to its employees on January 7, 2011, at 4:23 p.m., informing them of the screen and directing that “all staff, lawyers, and other employees of the firm are prohibited from discussing this matter” with either Brekke or Hoskins.

¶ 10 On January 14, 2011, the Krutzfeldts moved to disqualify Crowley from representing Pinnacle Bank in this case. The Krutzfeldts followed with a motion seeking to permanently enjoin Crowley from proceeding in the litigation. Crowley opposed the motion on the ground that, when Brekke and Hoskins moved to Crowley on January 1, 2011, all of their clients, including the Krutzfeldts, became “former clients” governed by M.R. Pro. C. 1.9. The trial court heard argument on the matter and subsequently denied the Krutzfeldts' motion to disqualify and for an injunction. In its order, the District Court noted, “[a]lthough Mr. Harris may have subjectively felt that Mr. Hoskins was retained throughout the entire litigation, there was no written agreement between the parties to support this position.” The court concluded the attorney-client relationship between Hoskins and the Krutzfeldts ended in July 2010, following submission of Hoskins's bill. The District Court reasoned that, because the Krutzfeldts were former clients before Hoskins joined Crowley, the ethical screen was sufficient to allow Crowley to continue to represent Pinnacle.

¶ 11 Following receipt of the court's order, the Krutzfeldts renewed their Motion for Permanent Injunction and included a copy of the engagement letter, which had not previously been supplied to the District Court. In their brief to this Court, the Krutzfeldts stated they did not initially submit the engagement letter to the trial court because it was not relevant to Pinnacle Bank's argument that the Krutzfeldts became former clients as of January 1, 2011, when Hoskins joined Crowley.

¶ 12 On April 7, 2011, the District Court entered a nunc pro tunc order again denying the Krutzfeldts' motion. The court did not mention the engagement letter in its second order. The Krutzfeldts appeal the court's denial of the motion for a permanent injunction.

[363 Mont. 371] STANDARD OF REVIEW

¶ 13 A district court's denial of a motion to disqualify is reviewed for an abuse of discretion. Schuff v. A.T. Klemens & Son, 2000 MT 357, ¶ 26, 303 Mont. 274, 16 P.3d 1002. While the denial of a temporary or permanent injunction is reviewed for “manifest abuse of discretion,” deference is not applied to the district court's conclusions of law, which are reviewed de novo to determine whether its interpretation of the law is correct. City of Whitefish v. Bd. of Co. Comm'rs of Flathead Co., 2008 MT 436, ¶ 7, 347 Mont. 490, 199 P.3d 201; Jefferson Co. v. Dep't of Envtl. Quality, 2011 MT 265, ¶ 16, 362 Mont. 311, 264 P.3d 715.

¶ 14 The existence of an attorney-client relationship generally is a question of fact. See Iowa Supreme Ct. Atty...