Miller v. Insurance Management Associates, Inc.

• Decision Date: 12 July 1991
• Docket Number: No. 65438,65438
• Citation: 249 Kan. 102,815 P.2d 89
• Parties: Malcolm MILLER, as Executor for the Estate of Paul C. Yankey, Jr., Plaintiff, v. INSURANCE MANAGEMENT ASSOCIATES, INC., William C. Cohen, Jr., R.K. Barrett, Joe Moddrell, Jr., Richard Matassarin, Paul G. Starr, Joseph C. Lukens, II, Daniel E. Nyberg, Thomas A. Berry, and Michael D. Lynch, Defendants/Appellees.
• Court: Kansas Supreme Court

Page 89

815 P.2d 89

249 Kan. 102

Malcolm MILLER, as Executor for the Estate of Paul C.

Yankey, Jr., Plaintiff, v. INSURANCE MANAGEMENT ASSOCIATES, INC., William C. Cohen,

Jr., R.K. Barrett, Joe Moddrell, Jr., Richard Matassarin,

Paul G. Starr, Joseph C. Lukens, II, Daniel E. Nyberg,

Thomas A. Berry, and Michael D. Lynch, Defendants/Appellees.

No. 65438.

Supreme Court of Kansas.

July 12, 1991.

Syllabus by the Court

1. This court will not consider or decide a question on appeal where no controversy exists between the parties or when any judgment that might be rendered would be unavailing.

2. Where an attorney is disqualified from representing a party to an action, the party, not the attorney, has standing to appeal the order of disqualification.

3. In an action by an attorney challenging his disqualification to represent a party, the record is examined and it is held: (1) that appellant attorney does not have standing to prosecute this appeal, (2) that the issue of disqualification is moot, and (3) that the appeal should be dismissed.

Timothy J. Finnerty of McDonald, Tinker, Skaer, Quinn & Herrington, P.A., Wichita, argued the cause, and Kelly J. Rundell, of the same firm, was with him on the briefs for appellants Mark G. Ayesh and Ayesh, Herd & Theis.

Jeffery A. Jordan of Foulston & Siefkin, Wichita, argued the cause, and Robert L. Howard and C.A. Beier, of the same firm, were with him on the brief for defendants/appellees.

ALLEGRUCCI, Justice:

This is an appeal from an order entered by the district court disqualifying Mark G. Ayesh, Esq., and his law firm of Ayesh, Herd & Theis, from representing the estate in this case. Ayesh was disqualified pursuant to Rule 1.9(a) (1990 Kan.Ct.R.Annot. 235) of the Model Rules of Professional conduct (MRPC), Supreme Court Rule 226 (1990 Kan.Ct.R.Annot. 210). The district court also disqualified Ayesh from further representation of the estate pursuant to MRPC 3.7 (1990 Kan.Ct.R.Annot. 267) and DR 5-102 (1990 Kan.Ct.R.Annot. 184).

Insurance Management Associates, Inc., (IMA) is a Kansas corporation engaged in business as an insurance agency. Paul C. Yankey, Jr., was the first president of IMA and the second largest individual shareholder from its formation on January 1, 1974, until his death on June 14, 1986. In May 1984, the board of directors (Board) of IMA designated Yankey to draft a new stock purchase agreement between IMA and its shareholders. The Board authorized Yankey to employ counsel to assist in this drafting. In early July 1984, Yankey contacted Malcolm Miller to draft the new agreement. Miller and Yankey then retained Ayesh the same month to assist in drafting the agreement.

Ayesh subsequently prepared a memorandum discussing the proposed agreement. Miller asked Ayesh to draft the same memorandum in a more formal fashion for circulation among shareholders of IMA. A memorandum dated July 19, 1984, proposed a general outline for the stock purchase agreement, and Ayesh knew that this memorandum would be distributed to the Board, which occurred at the July 30, 1984, board meeting. The Board knew that Yankey was working with Miller in drafting the agreement but was not aware that Yankey and Miller had hired Ayesh to assist.

From July to early October 1984, Ayesh worked on the proposed stock purchase agreement concerning the repurchase of stock from any IMA stockholder upon his or her disability, retirement, or death. He prepared the initial draft on his word processor, but numerous subsequent drafts were prepared by IMA.

Ayesh testified at the hearing on the motion to disqualify that he considered Yankey to be his client during the drafting of the agreement but also acknowledged that he had a professional responsibility to draft the agreement for the benefit of all shareholders of IMA, not just Yankey. Ayesh believed his job was to make sure the agreement complied with the shareholders' objectives from a technical and tax standpoint.

In his deposition, Ayesh testified that he understood he was to be Yankey's "drafter and technical adviser from a tax standpoint on the composition of the agreement." But Ayesh recognized that, through Yankey, he was "in effect, representing all of the parties to the shareholder agreement or to the stock purchase agreement."

Ayesh's billing statement for his work on the agreement was on his letterhead and delivered to Miller, but it was not specifically addressed to anyone. It contained a statement for "legal and tax services for 1984" based on 108 hours' work on the agreement, resulting in a total bill of $11,500. On December 11, 1984, Ayesh received a check from an account of IMA in the amount of $11,500. The check reflects a handwritten note initialed by Yankey, indicating "OK to pay. Tax work and drawing of stock purchase agreement."

Later, Ayesh received a stock purchase agreement dated February 19, 1985, which was executed by all shareholders of IMA. This agreement is identical to the December 1, 1984, "final draft" except for two differences, including one additional predicate paragraph in the preamble and alteration of the age of a shareholder when the stock repurchase obligations of IMA commence.

Yankey died on June 14, 1986. Upon his appointment as executor, Miller retained Ayesh as counsel to the estate. Ayesh filed a petition for probate of will on June 30, 1986.

On February 3, 1987, IMA delivered the 1986 year-end financial statements for IMA to Miller as executor for the Yankey estate. This was the basis for the appraisal used to value IMA stock for repurchase from Yankey's estate. On February 9, 1987, Miller met with defendant Moddrell to discuss why life insurance proceeds received by IMA after Yankey's death were not reflected on the financial statements as an asset of the company. Following this meeting, IMA consulted with counsel at the Foulston & Siefkin law firm.

Appraisals, which were based on the 1986 year-end financial statements, were delivered to Miller on March 25, 1987. A check for the purchase of Yankey's stock based upon the appraised value of IMA stock on December 31, 1986, was delivered to Ayesh on March 31, 1987. Miller and Ayesh rejected the value determined by the appraisers and claimed that life insurance proceeds should have been added to the net worth of IMA. Miller and Ayesh also claimed that the Board improperly manipulated the company's books to depress that value.

Ayesh asserted and testified that, during the drafting of the stock purchase agreement, Yankey had advised Miller that the parties to the agreement decided that the proceeds of the key-man life insurance obtained to fund the purchase of stock under the agreement would be included in IMA's net worth to increase the appraised value of IMA. Ayesh further testified that the agreement was intentionally left silent regarding the treatment of life insurance proceeds because generally accepted accounting principles would control IMA's treatment of the insurance proceeds and create this result.

This position is directly contrary to defendants' assertion that they intended the opposite treatment of the key-man life insurance proceeds. Defendants Cohen and Lukens allege that Yankey had told them that life insurance proceeds would not be included in the appraisal of IMA under the agreement. This assurance was consistent with IMA's purpose and intent to buy life insurance for the sole purpose of funding the purchase of the stock, not to increase the value of IMA.

In its findings of fact, the district court stated:

"29. The interpretation of the agreement asserted by the Estate is directly contrary to the testimony of the defendants regarding the intent of the parties to the agreement and the defendants' interpretation thereof. The testimony and exhibits presented at the hearing established that Mr. Ayesh provided substantive legal advice and services in drafting the agreement for IMA and its shareholders as to matters directly in issue in this case. Mr. Ayesh was more than a mere scrivener and considered himself to be providing tax and business type legal advice on the structure of the agreement. Specifically, with regard to the life insurance proceeds, Mr. Ayesh has testified that he is the person who first brought up the subject with Mr. Miller and that Mr. Miller was to find out how the shareholders wanted to treat life insurance proceeds in the agreement. Although Mr. Ayesh did not personally talk to the shareholders, Mr. Miller is alleged to have raised the issue with Mr. Yankey, at Mr. Ayesh's request, and Mr. Ayesh has testified that Mr. Miller advised him the shareholders of IMA had decided not to address life insurance in the agreement. Mr. Ayesh has testified the agreement was, therefore, left silent on the treatment of insurance proceeds. Because the agreement is silent on this issue, it is likely that evidence will be presented at trial regarding the intent of all of the parties involved in the drafting [of] the agreement, including Mr. Ayesh and Mr. Miller."

In a settlement proposal dated October 23, 1989, Ayesh and his cocounsel Frederick Dorwart, of Tulsa, Oklahoma, requested, for the first time, that IMA consent to Ayesh's serving as trial counsel for the estate. On January 12, 1990, defendants requested that Ayesh voluntarily withdraw from his representation of the estate, based upon his violation of MRPC 1.9 and his position as a witness relating to the controversy. Ayesh refused, and defendants filed the motion to disqualify.

The district court concluded that the evidence presented at the hearing and exhibits admitted by the parties established the existence of an attorney-client relationship between Ayesh and IMA and its stockholders in the drafting of the stock purchase agreement. The district court rejected Ayesh's argument that he was a mere technical adviser in drafting the agreement because he had been actively involved in the actual drafting and allegedly raised the issue regarding...