Picadilly, Inc. v. Raikos

• Decision Date: 02 December 1991
• Docket Number: No. 41S01-9112-CV-946,41S01-9112-CV-946
• Citation: 582 N.E.2d 338
• Parties: PICADILLY, INC., Appellant (Plaintiff Below), v. Gustin J. RAIKOS and Dennis L. Thomas, Jr., Appellees (Defendants Below).
• Court: Indiana Supreme Court

Page 338

582 N.E.2d 338

PICADILLY, INC., Appellant (Plaintiff Below), v. Gustin J. RAIKOS and Dennis L. Thomas, Jr., Appellees (Defendants Below).

No. 41S01-9112-CV-946.

Supreme Court of Indiana.

Dec. 2, 1991.

W.F. Conour and Rex E. Baker, Conour Doehrman, Indianapolis, for appellant.

John T. Lorenz and Jeffrey A. Doty, Kightlinger & Gray, Indianapolis, for appellees.

SHEPARD, Chief Justice.

This case presents an issue of first impression in Indiana: may a party assign a legal malpractice claim to someone who was his adversary in the underlying litigation? We hold that such assignments are invalid.

I. Case History

This appeal concerns a second lawsuit arising out of injuries sustained by Charles Colvin. Colvin had been injured in an automobile wreck caused by a drunken patron of Picadilly's bar in Indianapolis. Colvin sued the patron and Picadilly, Inc. The jury in that case found Picadilly liable for Colvin's injuries; it awarded Colvin $75,000 in compensatory damages and $150,000 in punitive damages. The facts and legal issues raised by that tort suit are more fully set out in Picadilly Inc. v. Colvin (1988), Ind., 519 N.E.2d 1217 [Picadilly I ].

This second round of litigation began in October 1986 when Picadilly, Inc. filed a claim against its attorneys, Gustin Raikos and Dennis Thomas, alleging they committed legal malpractice while defending Picadilly against Colvin's tort suit. Picadilly's complaint alleged that its attorneys' negligence permitted the jury to hear an erroneous instruction on punitive damages, leading to the six-figure punitive damage award. In April 1988, attorneys Raikos and Thomas moved for summary judgment in the malpractice case on grounds Picadilly failed to raise a genuine issue of fact with respect to the question of proximate cause. The trial court granted the attorneys' motion in November 1988.

At some point, Picadilly sought protection from its creditors by filing for reorganization under Chapter 11 of the Bankruptcy Act.

A month after the trial court granted the attorneys' motion for summary judgment, the U.S. Bankruptcy Court confirmed Picadilly's plan of reorganization. This plan included the discharge of Colvin's punitive damage claim, in part through the assignment of Picadilly's malpractice claim against Raikos and Thomas.

Shortly after the assignment, attorney William Conour, who had represented Colvin in the earlier personal injury action, became counsel to the plaintiff in the malpractice case (ostensibly still maintained by Picadilly, though for all that appears Picadilly is no longer the real party in interest). Conour immediately filed a motion to correct errors concerning the entry of summary judgment. In a statement opposing the motion, attorneys Raikos and Thomas argued the assignment of the claim was invalid. The trial court denied the plaintiff's motion to correct errors in July 1989.

The plaintiff appealed, and the Court of Appeals affirmed the summary judgment. Picadilly, Inc. v. Raikos (1990), Ind.App., 555 N.E.2d 167. The majority of the court concluded that an assignment to a tort-judgment creditor, received through a bankruptcy proceeding, should be regarded as valid. The majority held that Raikos and Thomas had successfully negated the element of causation necessary to the malpractice complaint and that summary judgment had been properly entered in their favor. Judge Baker concurred in the result, concluding the assignment itself was invalid as against public policy.

Because the assignability of legal malpractice claims is a new question of law, we grant the petition to transfer. Ind. Appellate Rule 11(B)(2)(b). We answer this important question in the negative--legal malpractice claims are not assignable.

II. The History of Assignability

Because a legal malpractice claim is a chose in action, we begin by reviewing the law generally controlling the assignment of choses in action. ¹ Under ancient common law, hardly any chose in action was assignable. 3 S. Williston, A Treatise on the Law of Contracts Sec. 405, at 7 (3d ed. 1960) [hereinafter Williston on Contracts]. Scholars have postulated various reasons for this rule. Both Lord Coke and Blackstone argued that assignment constituted champerty and maintenance, which were discouraged by the " 'wisdom and policy of the sages and founders of our law.' " 3 Williston on Contracts Sec. 404, at 7 (citing Lampet's Case (Eng.) 10 Coke, 46a, 48a). See also Draper v. Zebec (1941), 219 Ind. 362, 372, 37 N.E.2d 952, 956 ("In Blackstone's time it was thought that many, for the furtherance of pretended rights, conveyed some interest therein to great men in order to gain their support and influence over the courts in the interests of their cause...."). ² Discounting the fear of maintenance, others argued that assignment was barred by the doctrine of privity. Ames, The Disseisin of Chattels: The Inalienability of Choses in Action, 3 Harv.L.Rev. 337, 339 & n. 2 (1890) (noting that the rule barring assignments predated laws against maintenance and was justified in other European countries on grounds that such personal rights were non-transferrable). The intangible nature of a chose in action and the lack of commercial necessity are also credited as contributing to the non-assignment rule. 4 Corbin on Contracts Sec. 856, at 403.

Whatever the reason for this rule, over the centuries a variety of forces combined to work its slow reversal. The chose in action based on contract was the first to become assignable, primarily out of economic necessity. Competition between courts of equity and law, and assignees' creative use of the power of attorney also contributed. Id., at 404-08. The assignment of choses in action based on tort gained judicial acceptance more slowly. With the de-emphasis of privity, the passage of English statutes, and the demise of laws against champerty, choses in action for torts against personal property slowly gained the power of assignment. The assignment of tort suits growing out of an injury to the person, however, or for wrongs done to the person, reputation, or feelings of the injured party, continued to be held unassignable. Today, the non-assignability of a chose in action has become so restricted that it is now the exception to the rule of free assignment. Essex v. Ryan (1983), Ind.App., 446 N.E.2d 368, 374. Contract-based choses in action have been deemed assignable, except for contracts which are purely personal in nature (like marriage contracts). Id. at 374 n. 3. Tort-based choses in action are assignable if they arise out of injuries to personal property; torts for personal injuries and for wrongs done to the person, reputation, or feelings of the injured party remain unassignable. Annotation, Assignability of Claim in Tort for Damages to Personal Property, 57 A.L.R.2d 603, 606 (1958) ("few legal principles are as well settled ... as the rule that the common law does not permit assignments of causes of action to recover for personal injuries"); Annotation, Assignability of Claim for Personal Injury or Death, 40 A.L.R.2d 500, 502 (1955); 4 Corbin on Contracts Sec. 857, at 411; Methodist Hospital v. Town & Country Mut. Ins. Co. (1964), 136 Ind.App. 184, 192, 197 N.E.2d 773, 776-77.

The common law in most states today, including Indiana, teaches that any chose in action that survives the death of the assignor may be assigned. " '[A]ny cause or right of action may be assigned that, in accordance with the rules relating to the survivability of causes of action ... would, on the death of the assignor, survive to his legal representative.' " Armstrong v. Illinois Bankers Life Ass'n (1940), 217 Ind. 601, 619, 29 N.E.2d 415, 422 (quoting 6 C.J.S. Sec. 30, at 1079). An English statute on the survival of actions enacted in 1330 is responsible for this connection between survival and assignment. ³ The interpretation of this statute over the centuries eventually led courts to view assignment and survival as "convertible propositions." Zabriskie v. Smith, 13 N.Y. 322, 334 (1855).

As one might expect, this rule derived from an English statute enacted more than a century before the invention of movable type is not tightly enforced. Some state courts, like the Illinois Supreme Court, have expressly stated that although survival is the usual test for assignability, it is not the only test. North Chicago St. R.R. v. Ackley, 171 Ill. 100, 49 N.E. 222 (1897).

III. Assignability and Public Policy

Today, it seems anachronistic to resolve the issue of the assignability of a legal malpractice claim by deciding whether such a claim would survive the client's death. The parties to this litigation have not even briefed the survival issue. As is sometimes the case with the common law, the rule has outlived the reason for its creation. "The customs, beliefs, or needs of a primitive time establish a rule or a formula. In the course of centuries the custom, belief, or necessity disappears, but the rule remains." O.W. Holmes, The Common Law 5 (1881). Where such is the case, this Court has been willing finally to "reexamine the basis of the rule." Campbell v. State (1972), 259 Ind. 55, 58, 284 N.E.2d 733, 734.

Assignment should be permitted or prohibited based on the effect it will likely have on modern society, and the legal system in particular. This is a question properly within our purview as common law judges, but it is particularly appropriate for this Court to fashion a new rule based on public policy because the Indiana Constitution vests us with exclusive original jurisdiction over matters relating to the practice of law. Ind.Const. art. VII, Sec. 4.

The difficulty that other state courts have experienced in trying to apply the survival test reinforces the correctness of our decision to look first to public policy. Courts in at least eleven states have considered the question before us today. Seven have refused to permit assignment, ⁴ only four permit it. ⁵

Most of these courts have...