Nail v. Husch Blackwell Sanders, LLP

• Decision Date: 19 August 2014
• Docket Number: No. SC 93543.,SC 93543.
• Parties: Brian NAIL, Appellant, v. HUSCH BLACKWELL SANDERS, LLP, Respondent.
• Court: Missouri Supreme Court

436 S.W.3d 556

Brian NAIL, Appellant,

v.HUSCH BLACKWELL SANDERS, LLP, Respondent.

No. SC 93543.

Supreme Court of Missouri, En Banc.

June 24, 2014.

Rehearing Denied Aug. 19, 2014.

Timothy W. Monsees, Monsees & Mayer PC, Kansas City, Richard W. Martin Jr., Martin & Wallentine LLC, Olathe, KS, for Nail.

R. Lawrence Ward, James M. Humphrey, William E. Quirk and Anthony W. Bonuchi, Polsinelli PC, Kansas City, for Husch Blackwell.

Bryan Nickell, Cozean & Collins LLC, Sikeston, for Missouri Organization of Defense Lawyers, which filed a brief as a friend of the Court.

MARY R. RUSSELL, Chief Justice.

Introduction

Brian Nail appeals from the trial court's entry of judgment in favor of Husch Blackwell Sanders, LLP ¹ in a legal malpractice action. Prior to this case, Husch Blackwell represented Nail in a dispute with his former employer over his stock options. Nail had options to purchase the employer's stock within 18 months after the termination of his employment, but, when his former employer merged with another company, the stock was “locked up” for 12 months after the merger. The value of the stock declined significantly during the lockup period. Husch Blackwell eventually negotiated a settlement that extended Nail's option period, but when Nail attempted to exercise his options under the settlement agreement, complications arose that prevented him from immediately obtaining the stock.

Nail later sued Husch Blackwell for legal malpractice, alleging that Husch Blackwell (1) negligently advised him regarding his remedies in the dispute with his employer; and (2) negligently drafted the settlement agreement. He sought to recover the highest value of the stock during the lock-up period, or, alternatively, the amount of the settlement agreement's liquidated damages clause. The record does not show, however, that the decline in the value of Nail's stock options was a reasonable or probable result of Husch Blackwell's allegedly deficient advice. Nor does it show that Nail's employer would have agreed to include provisions in the settlement agreement that would have allowed Nail to receive liquidated damages, and there was no evidence that the employer would have then breached any such provisions. Accordingly, the trial court's judgment is affirmed because Nail failed to prove that Husch Blackwell's alleged negligence caused his claimed damages.

Factual and Procedural Background

As the chief financial officer of MTW Corporation, Nail acquired options to purchase stock in the company from its owner, Richard Mueller. When his employment was terminated in March 2001, he negotiated a separation agreement that permitted him to exercise his stock options until September 2002. The separation agreement provided that if MTW merged with another corporation, Nail's stock options would be converted into options to purchase stock in the successor company.

In July 2001, MTW was acquired in a stock-for-stock merger by The Innovation Group (“TIG”), a United Kingdom corporation with stock traded on the London Stock Exchange. The merger converted Nail's options to purchase MTW stock into options to purchase shares of TIG stock. As a condition of the merger, Mueller agreed to “lock up” his shares of TIG stock for one year, during which time he could not sell or transfer TIG stock without board approval. This included the stock to which Nail held options.

Nail learned of the MTW–TIG merger shortly before it became final, and he retained Husch Blackwell ² for advice on how to protect his stock option rights. Husch Blackwell first asked TIG's board of directors to approve Nail's exercise of his stock options, but it refused. Nail and his attorneys then had several discussions regarding his possible courses of action. Nail knew he always had the option to sue. According to Nail, however, Husch Blackwell consistently advised him that litigation was unlikely to be successful, and he should attempt to settle with Mueller.

In March 2002, on Husch Blackwell's advice, Nail attempted to exercise some of his stock options. Mueller refused to transfer the stock, and Husch Blackwell threatened litigation. Shortly thereafter Nail and Mueller entered into a settlement agreement under which Mueller agreed to extend the option period by five years, place the shares Nail had options to purchase in an escrow account, and give Nail a $50,000 credit toward the exercise of his options. In return, Nail released Mueller from liability for breach of the separation agreement. Under the settlement agreement, Mueller was required to deliver a transfer notice at the expiration of the lock-up period, which would place the shares of TIG stock Nail had options to purchase in escrow. Once the transfer notice was delivered, Nail would be free to exercise his stock options. To ensure Mueller's compliance, the settlement agreement included a liquidated damages clause, which provided that Mueller's failure to timely deliver the transfer notice would result in damages equal to the highest value of TIG stock during the remainder of the lock-up period without regard to the cost of exercising the options. The settlement agreement also required Mueller to execute and deliver any other documents necessary to transfer the stock.

Meanwhile, the price of TIG stock rose following the merger and then declined. From a price of about 2.9 Pounds per share (roughly $4) at the beginning of the lock-up period in July 2001, the stock price rose above 4 Pounds (more than $6) in August 2001. The stock price rapidly declined in October 2001, falling below 2 Pounds (less than $3). It rebounded in November and December 2001, approaching 4 Pounds per share (about $5), but in February 2002 it began a steady decline. In March 2002, when Nail and Mueller entered the settlement agreement, the stock was trading at 2.4 Pounds per share (about $3.50), and when the lock-up period expired in July 2002, the stock price had fallen below 1 Pound (approximately $1). The price remained low during Nail's extended exercise period and never rose above above 1 Pound before the period expired.³

When the lock-up period ended, Mueller timely delivered the transfer notice, and Nail used his $50,000 credit to purchase TIG shares. To complete transfer of the stock, however, the London Stock Exchange required Mueller to deliver a stock transfer form, and Nail was required to pay a stamp duty. Mueller promptly delivered the necessary form, but Nail objected to the $285 stamp duty and refused to pay it. The stock was not registered in Nail's name until he paid the stamp duty nearly two years later.⁴

Nail later sued Husch Blackwell. He alleged that the law firm was negligent in two respects. First, he argued that Husch Blackwell negligently advised him regarding his remedies for Mueller's interference with his stock option rights because it failed to advise him to tender an exercise of his options immediately following the MTW–TIG merger. According to Nail, this failure caused damages equal to the difference between the highest value of the stock during the lock-up period and what it would have cost him to acquire the stock, which amounted to several million dollars.⁵ Second, Nail argued that Husch Blackwell negligently drafted the settlement agreement by failing to require Mueller to place all of the documents necessary to transfer the stock in escrow at the end of the lock-up period. Nail claimed that this failure caused him to lose a liquidated damages claim against Mueller worth millions of dollars.⁶

Husch Blackwell moved for summary judgment. The trial court initially granted summary judgment on Nail's first claim, holding that Nail failed to prove that Husch Blackwell's alleged negligence caused the harm for which he sought to recover.⁷ It also granted partial summary judgment on Nail's second claim, finding that Husch Blackwell was not liable for the amount of the liquidated damages clause, but it denied summary judgment to the extent that Nail could prove he was damaged when his exercise of stock options was delayed until Mueller submitted the stock transfer form. After Nail stipulated that he suffered no harm during this time period, the trial court entered a judgment for Husch Blackwell. This appeal follows.⁸

Standard of Review

Summary judgment is proper when no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law. Rule 74.04. A “defending party” may establish a right to summary judgment by showing (1) facts that negate any of the claimant's necessary elements; (2) that the claimant, after an adequate period of discovery, has not been able and will not be able to produce sufficient evidence to allow the trier of fact to find the existence of any one of the claimant's elements; or (3) that there is no genuine dispute as to the existence of the facts required to support the movant's properly pleaded affirmative defense. ITT Commercial Fin. Corp. v. Mid–Am. Marine Supply Corp., 854 S.W.2d 371, 381 (Mo. banc 1993). Because the propriety of summary judgment is an issue of law, review is essentially de novo, and the trial court's judgment may be affirmed on any basis supported by the record. Id. at 376, 387–88.

Analysis

Nail asserts two legal malpractice claims against Husch Blackwell. In his first claim, he argues that Husch Blackwell negligently advised him regarding his remedies for Mueller's interference with his stock option rights, and that this negligence caused damages equal to the difference between the highest value of the stock during the lock-up period and his cost to acquire the stock. In his second claim, Nail argues that Husch Blackwell negligently drafted the settlement agreement, and that, but for its negligence, he would have had a liquidated damages claim against Mueller.

Both claims require Nail to prove “(1) that an attorney-client relationship existed; (2) that defendant acted negligently or in breach of contract; (3) that such acts were the...