Peterson v. Thomas M. Issenhuth & Issenhuth & Leibel, LLP

• Decision Date: 08 January 2014
• Docket Number: No. 26669.,26669.
• Citation: 842 N.W.2d 351,2014 S.D. 1
• Court: South Dakota Supreme Court
• Parties: Dennis PETERSON and Debra Peterson, Plaintiffs and Appellants, v. Thomas M. ISSENHUTH and Issenhuth & Leibel, LLP, Defendants and Appellees.

842 N.W.2d 351

2014 S.D. 1

Dennis PETERSON and Debra Peterson, Plaintiffs and Appellants,

v.Thomas M. ISSENHUTH and Issenhuth & Leibel, LLP, Defendants and Appellees.

No. 26669.

Supreme Court of South Dakota.

Considered On Briefs Nov. 4, 2013.

Decided Jan. 8, 2014.

Ronald A. Parsons, Jr. of Johnson, Heidepriem & Abdallah, LLP, Sioux Falls, South Dakota and Bruce M. Ford, Watertown, South Dakota, Attorneys for plaintiffs and appellants.

Dennis C. McFarland, Sioux Falls, South Dakota, Attorney for defendants and appellees.

WILBUR, Justice.

[¶ 1.] Dennis and Debra Peterson (Petersons) sued their attorney, Thomas Issenhuth and Issenhuth and Leibel, LLP (Issenhuth), for legal malpractice claiming that Issenhuth failed to properly represent Petersons' interests in a breach of contract action brought against Petersons by H & S Builders, Inc. (H & S). The circuit court denied Petersons relief in the legal malpractice action for failing to prove proximate cause or damages. Petersons appeal. We affirm.

FACTS AND PROCEDURAL BACKGROUND

[¶ 2.] On May 22, 1990, Petersons purchased a 22.34–acre tract of land at Johnson's Point, situated adjacent to Lake Madison. The property contained some outbuildings. Petersons renovated one of the outbuildings and converted it into a convenience store, bait shop, and small café. The store was eventually known as The Point. Petersons purchased the property with the intention of developing and selling 29 platted residential lots to individuals.

[¶ 3.] Petersons sold two lots (lots 23 and 24) to H & S for $55,000 each on August 23, 2006. Petersons hired Issenhuth to prepare a purchase agreement for the parties. The purchase agreement bound Petersons to provide water, sewer service, and a gravel road to lots 23 and 24 before June 1, 2007. The purchase agreement contained a mandatory arbitration provision to resolve any dispute that arose between Petersons and H & S.

[¶ 4.] In late 2007, a dispute arose when H & S claimed that Petersons breached the purchase agreement by not providing water, sewer service, and graveled roads to lots 23 and 24 by the agreed date of June 1, 2007. Following discussions between Petersons and H & S, Petersons apparently refunded two $25,000 lot payments to H & S. One payment occurred on April 16, 2008, and the other on June 3, 2008. Petersons decided to make these payments without seeking advice of counsel. No further payments were made by Petersons. H & S sued Petersons on November 19, 2009, alleging that Petersons had breached the August 2006 purchase agreement.¹

[¶ 5.] Petersons retained Issenhuth to defend them in the lawsuit. Issenhuth prepared an answer and a counterclaim on December 18, 2009. In the counterclaim, Petersons alleged that the two $25,000 lot payments were wrongfully made due to intimidation and for the purpose of avoiding litigation. Petersons demanded the return of both payments and claimed that they had not breached the purchase agreement. Curiously, Issenhuth, who drafted the purchase agreement with the mandatory arbitration provision, did not request that the parties engage in arbitration to resolve the dispute.

[¶ 6.] On June 8, 2010, H & S served Issenhuth with requests for admissions. Issenhuth did not respond to the requests nor did he inform Petersons that he had received the requests. Because of Issenhuth's failure to respond to the requests for admissions, counsel for H & S filed the summons, complaint, and admission of service on August 6, 2010. Thereafter, the requests for admissions were deemed admitted by the circuit court. H & S then filed a motion for summary judgment, accompanied by a statement of undisputed material facts and affidavits detailing Petersons' breach of the purchase agreement. Issenhuth, who had been served with the summary judgment motion, did not file any resistance to the motion.

[¶ 7.] The circuit court granted H & S's motion for summary judgment on September 28, 2010 (September 2010 judgment). Issenhuth attended the summary judgment hearing. The order for summary judgment indicated that Issenhuth filed no documents other than an unsigned set of answers. The order awarded a judgment to H & S in the amount of $104,628.82. This amount consisted of the $60,000 balance H & S paid to buy lots 23 and 24 plus prejudgment interest at the rate of ten percent. The award gave Petersons credit for the $50,000 refund payment Petersons made to H & S. The judgment required H & S to reconvey lots 23 and 24 to Petersons once the judgment was satisfied. Notice of the entry of judgment was sent to Issenhuth on September 29, 2010. Issenhuth, however, did not notify Petersons of the entry of judgment.

[¶ 8.] Less than a week before the circuit court's grant of summary judgment, H & S's counsel contacted Issenhuth extending a general offer of settlement of the case. Issenhuth did not respond. On November 10, 2010, H & S's counsel wrote to Issenhuth with a specific offer to settle, yet this offer went unanswered by Issenhuth. An additional letter containing an offer to settle was sent on February 11, 2011. Again, there was no response from Issenhuth.

[¶ 9.] Petersons learned of the September 2010 judgment in early March 2011 when one of H & S's owners called Dennis Peterson and asked him “how [Petersons] were coming on deciding on the offer that [H & S] had introduced to [Petersons].” When Dennis informed the caller that he had not been apprised of any new developments, the caller told Dennis that a judgment had been taken against Petersons several months earlier. Based on this information, Petersons attempted to contact Issenhuth. Their repeated telephone calls went unreturned. In April 2011, Petersons visited with Issenhuth and Issenhuth informed Petersons that the circuit court would not have permitted any testimony at the summary judgment hearing so it was unnecessary for the Petersons to appear at that hearing. Dennis testified that Issenhuth informed them “that the case was decided upon paperwork, not testimony.”

[¶ 10.] Also in April 2011, H & S's counsel called Issenhuth about a settlement and a letter from H & S's counsel followed the phone call. Issenhuth did not respond. Issenhuth never communicated the offers to settle to Petersons even though Petersons had been in communication with Issenhuth.

[¶ 11.] Petersons eventually fired Issenhuth and hired a new attorney, Bruce Ford, to assist them. On June 17, 2011, Ford filed a motion to reopen the grant of summary judgment in favor of H & S. A hearing date was set for the motion, but before the hearing could occur, Petersons hired another attorney, Chris Giles, to try to settle the case with H & S. Giles contacted H & S's counsel and a settlement agreement was negotiated between the parties in late August 2011. The settlement allowed H & S to retain lots 23 and 24, conveyed lot 27 to H & S, and required Petersons to pay H & S $1,000. Ultimately, Ford abandoned his motion to set aside the summary judgment when he learned of the settlement agreement. Final satisfaction of the judgment was filed on January 26, 2012.

[¶ 12.] During that same time, Petersons sold The Point and an additional lot for a total of $135,000. At the trial, Petersons presented the testimony of local realtor, Jeff Lechner, to demonstrate their claimed damages. Lechner assessed the value of The Point's business operation ($40,000), the land it was on ($100,000), the liquor license ($40,000), the equipment ($5,000 to $8,000), and the ongoing business ($10,000 to $15,000).

[¶ 13.] On July 16, 2012, Petersons commenced this legal malpractice case against Defendants. Issenhuth did not respond to the summons and complaint until after September 7, 2012, when Ford moved for a default judgment on the legal malpractice case. Issenhuth eventually filed an answer to the complaint on September 26, 2012. In its first memorandum decision, the circuit court remarked:

The Answer did not address the merits of the Complaint. In the Answer [,] Issenhuth complained that [the circuit court] should not have signed the Order granting Summary Judgment citing all sorts of meaningless South Dakota Code references dealing with the time the order was signed which Issenhuth claimed affected [the circuit court's] jurisdiction. It was a mere obfuscation. When Ford informed Issenhuth that the litigation in Civ. 10–202 [the underlying breach of the purchase agreement file] had been settled, Issenhuth indicated that he was unaware of that event. Obviously, he had not looked at the Clerk's File Civ. 10–202.

The circuit court entered a default judgment as to liability (duty and breach) in favor of Petersons because Issenhuth failed to demonstrate that he had a meritorious defense and, without excuse, failed to timely answer the summons and complaint.

[¶ 14.] Following waiver of a jury trial, the parties proceeded to a court trial on the issues of proximate cause and damages. In examining whether Issenhuth's negligence proximately caused any damages to Petersons, the circuit court considered whether Petersons could demonstrate that they would have prevailed at trial or arbitration on the underlying breach of contract claim, the “case within a case” standard. The circuit court determined that Petersons could not demonstrate that they would have been successful at trial or arbitration on the underlying breach of contract claim. Ultimately, the circuit court concluded that Petersons failed to prove they suffered any damages that were proximately caused by Issenhuth's negligent representation. Petersons appeal the circuit court's ruling on proximate cause and damages.

STANDARD OF REVIEW

[¶ 15.] The circuit court's findings of fact are reviewed “under the clearly erroneous standard.” Eagle Ridge Estates Homeowners Ass'n, Inc. v. Anderson, 2013 S.D. 21, ¶ 12, 827 N.W.2d 859, 864. Conclusions of law are reviewed by this Court de novo. Id. ¶ 13, 827 N.W.2d at 864–65. “On review, this Court defers to the circuit court, as fact...