Paradise Orchards General Partnership v. Fearing

• Decision Date: 13 July 2004
• Docket Number: No. 22046-0-III.,22046-0-III.
• Citation: 122 Wash.App. 507,94 P.3d 372
• Court: Washington Court of Appeals
• Parties: PARADISE ORCHARDS GENERAL PARTNERSHIP, a Washington General Partnership, Appellants, v. George FEARING and Leavy, Schultz, Davis & Fearing, P.S., Respondents.

94 P.3d 372

122 Wash.App. 507

PARADISE ORCHARDS GENERAL PARTNERSHIP, a Washington General Partnership, Appellants, v. George FEARING and Leavy, Schultz, Davis & Fearing, P.S., Respondents.

No. 22046-0-III.

Court of Appeals of Washington, Division 3, Panel Two.

July 13, 2004.

Mark A. Johnson, Sims G. Weymuller, Donovan R. Flora, Johnson, Flora, Seattle, WA, for Appellants.

John R. Creatura, Tacoma, WA, for Respondents.

BROWN, J.

Paradise Orchards (Paradise) sued its former lawyer, George Fearing, and his law firm (collectively Mr. Fearing) in Benton County alleging he negligently prepared a remedies clause in an earnest money agreement involving the sale of Paradise's orchard. In previous litigation in Franklin County between Paradise and the buyer, a judge gave an interlocutory, unappealed ruling that the remedies clause did not allow specific performance, allegedly forcing Paradise to unfavorably settle with the purchaser before final judgment. The trial court held it was not bound by the previous ruling, reasoned specific performance was an available remedy, and dismissed. On appeal, Paradise contends collateral estoppel precluded the trial court from reinterpretation of the remedies clause. We disagree, and affirm.

FACTS

This legal malpractice dispute arises from a failed real estate transaction in which Mr. Fearing represented the seller, Paradise. In August 1997, Stormy Mountain Fruit Company offered to buy Paradise's apple orchard and crop. The original offer contained a standard remedy clause limiting the seller's remedy upon failure to close. After exchanging drafts, Mr. Fearing prepared an earnest money agreement (agreement) acceptable to both buyer and seller. The agreement contained the following remedies clause (Paragraph 24):

Upon any default by the buyer, under this earnest money agreement, seller shall have the right to immediately repossess the property [interlineated part: after providing buyer with 15 days written notice of default]. In such event, seller shall have the right to maintain for itself, and to sell on its behalf, keeping the proceeds thereof, of any crop on the property. Seller shall have no obligation to reimburse buyer for any of the earnest money deposit.

Exh. 2 at 7-8.

After the closing fell through, Paradise sued Stormy Mountain and others not parties here for specific performance in the Franklin County Superior Court. After the summary judgment phase, Mr. Fearing ceased representing Paradise, apparently to facilitate his participation as a witness. In September 2000, the court interpreted the agreement and issued a three sentence memorandum decision, ruling the agreement was a valid contract and Paradise's remedy was "limited by the provisions of Paragraph 24." Exh. 1. Paradise did not seek appellate review of the adverse ruling. Instead, Paradise compromised and settled with Stormy Mountain for $335,000. No findings, conclusions, or final judgment were entered.

In December 2000, Paradise filed a legal malpractice suit in Benton County against Mr. Fearing and others no longer in this suit. In March 2003, the parties entered two relevant stipulations. First, the parties agreed to a bench trial. Second, the parties agreed that the trial court would first determine whether it had legal authority to revisit the Franklin County court's ruling regarding Paragraph 24 of the agreement.

The parties agreed that if the trial court revisited the ruling, it would then "determine whether or not the exclusive remedy in favor of Paradise Orchards against Stormy Mountain Fruit Company (Paragraph 24 of the Earnest Money Agreement) was repossession or whether repossession was additive to all other remedies under Washington law, including specific performance and money damages." Clerk's Papers (CP) at 20-21. The parties agreed that if the court determined "that repossession was additive to other remedies, including specific performance and money damages, then the Court will enter findings of fact and conclusions of law and enter judgment for the defendants against plaintiff on plaintiff's Complaint." CP at 21. Defendant's counterclaim is not an issue here.

On April 7, 2003, the trial court entered findings of fact and conclusions of law favoring Mr. Fearing. The trial court concluded collateral estoppel did not apply to the Franklin County court's ruling and against Mr. Fearing. "Since collateral estoppel does not apply, the Court has the right and obligation to evaluate the correctness of [the Franklin County court's] ruling that the `remedies clause' was an exclusive remedy and precluded plaintiff from recovering specific performance and/or money damages." CP at 14.

The trial court then concluded that the Franklin County court erred. "Because the parties did not specifically exclude all other remedies, the law implies that those remedies are not waived and may be pursued, in the alternative, to the stated right of repossession." CP at 14. The trial court supplemented that conclusion of law with the transcript of its oral ruling. "Based on the stipulation of the parties, since the Court has determined that repossession was additive to other remedies, including specific performance and money damages, the Court hereby enters judgment for the defendants and against plaintiff on plaintiff's complaint." CP at 14. The trial court denied Paradise's motions to vacate the judgment and for a new trial. Paradise appealed both the trial court's ruling on the merits and denial of its post-trial motions.

ANALYSIS

A. Collateral Estoppel

The issue is whether the doctrine of collateral estoppel barred the trial court from revisiting the memorandum decision of the prior court.

"To prove legal malpractice, the plaintiff must show (1) employment of the attorney (giving rise to the duty), (2) failure by the attorney to exercise ordinary skill and knowledge (breach of the duty), (3) proximate cause (causation), and (4) resulting loss to the client (damages)." Kommavongsa v. Haskell, 149 Wash.2d 288, 300, 67 P.3d 1068 (2003) (citing Hizey v. Carpenter, 119 Wash.2d 251, 830 P.2d 646 (1992)). Here, Mr. Fearing's duty to Paradise is not in dispute. The disputed issue of the meaning of Paragraph 24 implicates primarily the causation element of Paradise's claim.

"Proximate cause consists of two elements: cause in fact and legal causation." Nielson v. Eisenhower & Carlson, 100 Wash.App. 584, 591, 999 P.2d 42 (2000) (citing City of Seattle v. Blume, 134 Wash.2d 243, 251, 947 P.2d 223 (1997)). "Cause in fact refers to the `but for' consequences of the act, that is, the immediate connection between an act and an injury." Blume, 134 Wash.2d at 251-52, 947 P.2d 223. "The `but for' test requires a plaintiff to establish that the act complained of probably caused the subsequent disability." Daugert v. Pappas, 104 Wash.2d 254, 260, 704 P.2d 600 (1985).

"Legal causation rests on policy considerations determining how far the consequences of a defendant's act should extend." Blume, 134 Wash.2d at 252, 947 P.2d 223. "It involves the question of whether liability should attach as a matter of law, even if the proof establishes cause in fact." Id. at 252, 947 P.2d 223. In our context, "proximate cause boils down to whether the client would have fared better but for the attorney's malpractice." Lavigne v. Chase, Haskell, Hayes & Kalamon, 112 Wash.App. 677, 683, 50 P.3d 306 (2002) (citing Daugert, 104 Wash.2d at 257, 704 P.2d 600; Brust v. Newton, 70 Wash.App. 286, 293-94, 852 P.2d 1092 (1993)).

"Collateral estoppel, also known as issue preclusion, `prevents relitigation of an issue after the party estopped has had a full and fair opportunity to present its case.'" Barr v. Day, 124 Wash.2d 318, 324-25, 879 P.2d 912 (1994) (quoting Hanson v. Snohomish, 121 Wash.2d 552, 561, 852 P.2d 295 (1993)). The party asserting collateral estoppel must prove four elements: (1) the issue decided in the prior action is identical to the issue considered in the second; (2) the prior adjudication ended in a final judgment on the merits; (3) the party to be estopped was a party or in privity with a party to the prior action; and (4) application of collateral estoppel will not work an injustice against the party to be estopped. Barr, 124 Wash.2d at 325, 879 P.2d 912; Hanson, 121 Wash.2d at 561-62, 852 P.2d 295.

The parties here do not dispute that both lawsuits concern the identical issue, the meaning of Paragraph 24 of the agreement. They dispute the second, third, and fourth elements of collateral estoppel. Mr. Fearing prevails on each element.

To invoke collateral estoppel the bound party must have "'had a full and fair opportunity'" to litigate the issue the first time around. Barr, 124 Wash.2d at 325, 879 P.2d 912 (quoting Hanson, 121 Wash.2d at 561, 852 P.2d 295). Mr. Fearing had no opportunity to litigate the meaning of Paragraph 24 on his own behalf. He was not a party to the Franklin County litigation. Nor was Mr. Fearing in a position to intervene as a party. Instead, Paradise enlisted Mr. Fearing, its former agent, as a witness in its behalf in aid of the factual assertion that its intent was to have specific performance as an additive remedy. The Franklin County court interpreted paragraph 24 of the agreement as a matter of law in an interlocutory ruling. While that may be the law of the Franklin County case, it is not the law of the Benton County case or a proper basis for Paradise's collateral estoppel arguments here. Even though the law of the case may form the basis for a collateral estoppel argument, the law of the case rule is discretionary and not applied when the result would be unjust. Greene v. Rothschild, 68 Wash.2d 1, 10, 414 P.2d 1013 (1966). Paradise did not seek discretionary review of the arguably erroneous interlocutory ruling or allow final judgment to be entered by the Franklin County court so it could appeal. Rather, Paradise opted to compromise and settle with the buyer instead of contesting the...