Olson v. Fraase

• Decision Date: 31 March 1988
• Docket Number: No. 870017,870017
• Citation: 421 N.W.2d 820
• Parties: Mavis I. OLSON and Mavis I. Olson, Personal Representative for the Robert W. Olson Estate, Plaintiff, Appellee and Cross Appellant, v. Leonell W. FRAASE and Paul H. Fraase, d/b/a Fraase Law Firm, Defendants, Appellants and Cross Appellees. Civ.
• Court: North Dakota Supreme Court

Page 820

421 N.W.2d 820

Mavis I. OLSON and Mavis I. Olson, Personal Representative for the Robert W. Olson Estate, Plaintiff Appellee and Cross Appellant, v. Leonell W. FRAASE and Paul H. Fraase, d/b/a Fraase Law Firm Defendants, Appellants and Cross Appellees.

Civ. No. 870017.

Supreme Court of North Dakota.

March 31, 1988.

Rehearing Denied April 18, 1988.

Beauclair & Cook, Bismarck, for plaintiff, appellee and cross-appellant; argued by James L. Norris.

Fleck, Mather, Strutz & Mayer, P.C., Bismarck, for defendants, appellants and cross-appellees; argued by Steven A. Storslee.

LEVINE, Acting Chief Justice.

Defendants Leonell W. Fraase and Paul H. Fraase, doing business as Fraase Law Firm, appeal from a district court judgment This multifaceted lawsuit arose from allegedly improper conduct of attorneys Leonell [Lee] Fraase and Paul Fraase during the course of a mineral-buying partnership between Lee and Robert Olson, and during the seven months following Robert's death in November 1983. In order to understand the basis for the trial court's decision, a somewhat detailed recitation of the facts is necessary.

holding them jointly and severally liable for $238,829.03 in compensatory, nominal and exemplary damages, attorney fees and costs, to plaintiff Mavis I. Olson in her individual capacity and as personal representative of the estate of her husband, Robert W. Olson. We affirm in part and reverse in part.

FACTS

Robert was a farm and ranch realtor whose vision was impaired to the extent that he was considered legally blind. During 1980, Lee and Robert entered into an oral partnership agreement to buy and sell mineral interests. They agreed to equally divide the expenses involved in the enterprise, including the costs of acquiring the mineral interests, and any profits which might accrue through their resale. They further agreed that Lee would provide legal services for the partnership and that Robert would provide his services as a realtor. As a matter of convenience, the mineral interests acquired by the partnership for resale were held in Robert's name alone. During this period of time, Robert was also involved in other business ventures which fared poorly, and consequently, Lee provided most of the capital required to purchase the partnership's mineral interests.

Four of the partnership's mineral transactions are relevant to this case:

1) In 1980, Robert and Lee purchased 525 mineral acres in Grant and Morton Counties from Andrea and Clarence Schollmeyer for $23,625. Lee furnished the entire purchase price and title was placed in Robert's name.

2) In early 1982, Robert, Lee, and Robert Thompson, an independent mineral broker, purchased 190 mineral acres in Morton County from the estate of Annetta Seydel for $5,300. Lee and Thompson provided the purchase price and the minerals were titled in Robert's name. Because the mineral acres could not be immediately resold, 95 acres were transferred from Robert to Thompson, leaving Robert holding title to the remaining 95 acres.

3) In 1980, Robert, Lee, and Thompson purchased 480 mineral acres in Morton County from Albert and Joan Kovash for $21,600. Thompson and Lee provided the entire purchase price and through Thompson's efforts, 400 acres were resold, leaving Lee and Robert with a cash profit and 80 mineral acres free of indebtedness. Ten of these mineral acres were subsequently deeded to Paul Fraase. The remaining mineral acres were titled in Robert's name.

4) The largest transaction was the purchase of the surface and mineral acreage of a ranch in Dunn County. Because of the $250,000 purchase price, it was necessary for other investors to become involved. Lee's brother, Elmer Fraase, expressed an interest in the property and ultimately provided the $60,000 downpayment. Upon payment of the $60,000, 315 acres, approximately one-half of the total mineral acreage, were transferred to the purchasers and titled in Robert's name. Title to the remaining mineral acreage and the total surface acreage was to remain in the sellers until the contract was paid. On April 3, 1981, Robert deeded approximately 157 of the mineral acres to Elmer to serve as security for the downpayment. On the same date, Robert deeded Lee approximately 78 of the mineral acres, representing one-half of the remaining mineral acres. Neither deed was recorded at the time. On May 12, 1981, Robert deeded an additional 50 mineral acres to a purchaser for $20,000, and the money was placed in Robert and Lee's joint checking account. Elmer Fraase eventually decided to withdraw from the transaction. According to Lee, Robert deeded Elmer 35 mineral acres in consideration for his involvement, and this deed was recorded. Excluding the previous unrecorded mineral deeds to Lee and By mid-1982, Lee had contributed substantially more funds for the acquisition of the mineral interests than had Robert. On May 14, 1982, Robert and Lee signed a written agreement, drafted by Lee, under which Robert agreed to convey to Lee various mineral interests from these four transactions "[a]s satisfaction for monies advanced remaining unpaid." ¹ As a result of the conveyances outlined in the agreement, Robert held record title to 40 mineral acres from the Schollmeyer transaction, 20 mineral acres from the Seydel transaction, 40 mineral acres from the Kovash transaction, and 12 mineral acres in McKenzie County from a previous trade for some Dunn County minerals. Robert requested Lee to place his remaining mineral interests in joint tenancy with his wife Mavis, but the necessary documents were never prepared.

Elmer, approximately 230 of the original 315 mineral acres remained titled in Robert's name. Robert deeded another 115 mineral acres to Lee, leaving each with equal record title ownership. In addition to miscellaneous other conveyances which were made of a small number of the mineral acres, during 1982 Lee prepared deeds conveying from Robert to W.S. Raymond 177 mineral acres in satisfaction of Robert's personal debt to Raymond on business ventures unrelated to the mineral-buying partnership.

Robert died on November 3, 1983. Shortly thereafter, Mavis Olson contacted Lee regarding the procedure for obtaining sales proceeds from cattle Robert had previously consigned to a livestock auction sales barn. Lee referred her to Paul Fraase, who obtained Mavis' appointment as personal representative of Robert's estate. According to Mavis, Lee visited her home in January 1984. Mavis showed him promissory notes that Robert had signed prior to his death. One note was secured by Robert's cattle and co-signed by W.S. Raymond. After the cattle were sold and the proceeds applied to the debt, $36,319.61 remained to be paid. Another note covered a $7,337.27 loan from the Citizens State Bank of Ray. One of the items securing this note was an Olson family automobile. According to Mavis, both Lee and Paul told her that the notes were "chattel mortgages that had to be paid." Mavis used her personal funds to pay off the car note and the balance due on the cattle note.

According to Mavis, in January 1984 Lee advised her that the Fraase Law Firm would have a conflict of interest in handling the estate. Mavis selected the Hoovestol Law Firm to handle the estate and Lee accompanied her to the office on February 8, 1984, where a substitution of attorneys was signed. According to Calvin Hoovestol, Lee had telephoned him earlier and said "that he and Paul had finished this estate for Mavis Olson, that they needed a lawyer to read through it and to sign off." Other than providing information to the Hoovestol Law Firm during the probate of the estate, the Fraases performed no legal services for the estate after the February 8, meeting.

In June 1984, Lee filed a claim against the estate in the amount of $38,736.21 for money owed to him from the mineral-buying partnership. In that same month, Lee recorded his 78-acre Dunn County mineral deed and Elmer Fraase's 157-acre mineral deed. According to counsel, the estate is insolvent.

The plaintiff commenced this action against the Fraases in August 1984 alleging, among other things, "legal malpractice, legal conflict of interest, breach of the defendants' fiduciary duty of utmost good faith as attorneys and as partners with Robert W. Olson, ... conversion of mineral interests, breach of contract, actual fraud, constructive fraud, deceit, fraudulent misrepresentation, and/or creating an implied trust...." The case was tried to the court without a jury.

In its findings of fact and conclusions of law, the trial court determined that an "attorney-client relationship existed between the defendants and Robert Olson at the inception and throughout the life of the Olson-Fraase mineral-buying partnership;" that the "defendants had a legal and ethical obligation to Robert Olson, as a client with whom defendant Lee Fraase entered into a business relationship, either to advise Mr. Olson to seek the advice of outside counsel, or to counsel and advise Mr. Olson regarding the business relationship in the same manner as if the defendants had been outside counsel;" that the May 14, 1982 agreement between Robert and Lee "settled all claims between them as of that date;" that Lee's "act of recording the Elmer Fraase mineral deed ... constitutes a conversion to his own personal benefit of an instrument held in trust for a client, and was an act of deceit;" that Lee's "creditor's claim upon the Robert Olson estate for payment for mineral acres that were Robert Olson's free and clear pursuant to the May 14, 1982, agreement, was an attempt to defraud the Robert Olson estate, and was an act of deceit;" and that the "defendants' attempt to retain control of the probate of the Robert Olson estate was an attempt to defraud the plaintiff, and an act of deceit." The trial court also determined, however, that the "evidence does not show that the plaintiff or the Robert Olson estate has incurred any economic damage as a...