Rhodes v. Batilla

• Decision Date: 18 February 1993
• Docket Number: No. A14-92-00154-CV,A14-92-00154-CV
• Citation: 848 S.W.2d 833
• Parties: Christopher D. RHODES, Appellant, v. Ione A. BATILLA, Appellee. (14th Dist.)
• Court: Texas Court of Appeals

Page 833

848 S.W.2d 833

Christopher D. RHODES, Appellant, v. Ione A. BATILLA, Appellee.

No. A14-92-00154-CV.

Court of Appeals of Texas Houston (14th Dist.).

Feb. 18, 1993.

Rehearing Denied March 18, 1993.

W. Stephen Rodgers, Charles Escher, Houston, for appellant.

David A. Furlow, Houston, for appellee.

Before J. CURTISS BROWN, C.J., and SEARS and ELLIS, JJ.

OPINION

SEARS, Justice.

Ione A. Batilla (Batilla), appellee, brought suit for legal malpractice against Christopher D. Rhodes, appellant. Trial was to a jury which found gross negligence in appellant's handling of Batilla's tax defense from the Internal Revenue Service (IRS). Judgment was entered on the verdict in favor of Batilla, awarding her $125,500 in actual, and $125,000 in exemplary, damages. Appellant raises 22 points of error. We affirm.

Batilla's tax liability arose in connection with her employment at Randolph Office Furniture (ROF). Batilla was employed by ROF in January 1980 and left the company in December 1984. While she was with ROF she was employed as controller. She did the company books, worked with a company called ADP to issue payroll checks, and oversaw the purchasing department. Batilla, however, had no authority to sign company checks, even on the payroll account, without the owner's approval. In 1984 and 1985, the company was having financial trouble and eventually went into Chapter 7 bankruptcy. During this time period, the owner, George Randolph (Randolph), refused to approve any checks to pay the company's FICA payroll taxes. At first, ADP would automatically send the payroll taxes to the IRS. However, after two of these drafts bounced, ADP notified Randolph it would not handle the payroll taxes and would not be responsible for non-payment of these taxes. Thereafter, on the advice of the company attorney, Batilla had someone witness her tender of checks for the taxes to Randolph for his signature. Randolph would either refuse to sign the checks or tear them up. As a result, the ROF payroll taxes were not paid.

In January 1986, Batilla received a call from Mr. Bean with the IRS regarding ROF's unpaid FICA taxes for 1984 and the first quarter of 1985. Mr. Bean wanted to determine if Batilla was a "responsible person" for purposes of assessing a 100% penalty against her, i.e., essentially collecting the unpaid company taxes from her. Batilla called her CPA, Jim Orick (Orick), and told him about the call from the IRS. Orick officed in the same building as appellant, and he referred Batilla to appellant for advice. Orick indicated to Batilla that appellant was a tax expert and could represent her. On January 27, 1986, Batilla called appellant, told him that Orick had referred her, and asked if appellant could help her. Batilla testified appellant assured her he could help. She told appellant of the phone call from Mr. Bean and that the IRS had requested a personal interview. Appellant told Batilla to "go down and talk to Mr. Bean and then come and see him after [she] spoke with Mr. Bean." She testified appellant further advised her "he would call Mr. Bean" and he indicated that "everything would be all right." Further testimony shows appellant told her there would be a $500 retainer fee and "that he would help" her. They set an appointment for early February to meet in person. The same day as this initial telephone consultation, January 27, 1986, appellant filled out a time-slip charging one-half hour to Batilla's account for "several telephone conferences with client [and] [t]elephone call to Mr. Beene of IRS." On January 28, 1986, appellant filled out a time-slip for Batilla's account reflecting one hour for "[p]reparation of Power of Attorney and letter to Mr. Beene." At trial, however, appellant testified he really was not retained to represent Batilla, and did not know "whether [he] actually transcribed" the letter.

A couple of days after Batilla received the call from the IRS, Larry Owens (Owens), a past president of ROF, also received a call from Mr. Bean about the unpaid taxes. Batilla and Owens agreed to meet and go see the IRS agent together on February 6, 1986. Owens testified he did not want "to go to the IRS without professional help," and he asked his long-time friend Joe Hart (Hart), a CPA, to go with him. When they got to the IRS building, Hart told them they would have to sign a power of attorney before he could go into the meeting with them. Owens and Batilla signed a power of attorney on the trunk of the car. Hart went in with them and the meeting was a very unpleasant experience. Mr. Bean was "intimidating and rather rough," and treated them as guilty until proven innocent. He refused to let them leave the office until they filled out and signed a Form 4180. Batilla testified that Mr. Bean explained that this form "was not an admission of guilty, but just that [they] had showed up for the meeting." However, Mr. Bean told Batilla if she did not fill out the form he would assess all of the penalty against her. They were not allowed to take the documents with them, get professional help in filling them out, or make any phone calls to get assistance. Further, they were not allowed to talk to each other while filling them out. Batilla was extremely upset, nervous, "scared to death," and crying during this process.

On February 13, 1986, Batilla and Owens met appellant. Batilla took a copy of her Form 4180 with her to the meeting. She went over it with appellant explaining that in the stress of the moment she had made some mistakes on the form. The most glaring mistake was that she claimed employment at ROF for 1985, while in reality she was not employed there during 1985. She and Owens gave appellant the facts and explained that neither one was a "person responsible" for the payment of ROF's payroll taxes. They provided him with the names, addresses and phone numbers of witnesses who could verify these facts. They discussed the various company bank accounts and they specified on which accounts Batilla and Owens could and could not sign. Batilla explained to appellant that the unpaid FICA taxes came out of the operating account and that she never had signature power on that account. She further told appellant how Randolph would refuse to sign, or would tear-up, the checks to the IRS for the payroll taxes. Appellant, however, testified he did not reduce these facts to writing in order to follow up and investigate, even though this information was vital to Batilla's defense. In fact, appellant took absolutely no notes of this or any other conversation with Batilla, and stated at trial that he did not think it was important to take notes in order to get the facts straight.

At this initial meeting, appellant told them he was a "tax specialist." That he had extensive experience with 100 percent penalty cases and that he was an expert in that area. He explained that his hourly rate was $125 an hour, and had Batilla and Owens each sign a power of attorney. He told Batilla that she had a defendable case. He further indicated she would win, but the case might have to go to trial and that would cost $7,000 to $10,000. Batilla told him at that time she did not have the money to go to court and she wanted him to present the facts to the IRS so they would know she was not a "person responsible" for the taxes. Appellant told both Batilla and Owens he would keep them informed and send them copies of any letters he wrote.

Appellant filled out time-slips that same day, charging .4 of an hour to Batilla for "[p]reparation of Form 2848," and 1.5 hours for "[c]onference with client." Batilla and Owens were subsequently each sent a bill for the $500 retainer fee, which they both paid to appellant. In May 1986, Batilla received a letter from the IRS indicating that efforts to collect the taxes from Randolph had not resulted in payment. The letter went on to state the IRS proposed to assess all of the penalty against Batilla, and if she agreed to the assessment she was to sign the attached Form 2751. Batilla called appellant and told him she "was not going to sign anything." She informed appellant "he needed to call them up and take care of it and give them the facts that he had not given them." Appellant indicated that he would take care of it.

Appellant's time-slips indicate no further activity until June 6, 1986 when he charged Batilla 1.3 hours for "[p]reparation of Letter of Protest [and] [r]eview of notice received regarding 100% penalty," and 2.0 hours for "[p]reparation of protest [and] [r]eview of files for L'Lani corporation." When Batilla got a copy of the protest letter which appellant sent to the IRS, she immediately called appellant to tell him the information in the letter was incorrect and that he needed to give them the true facts. Appellant told her he would take care of it. However, appellant never corrected any of the facts in the protest letter, and testified at trial he was not concerned that the letter contained totally inaccurate information "because it was to the best of [his] knowledge at that time."

In 1986, appellant also gave Batilla advice on protecting her family from tax liability. Mr. Bean had told Batilla he would garnish her wages and her husband's wages. In response, appellant told Batilla the only way she could prevent the IRS from taking her money was to get a "paper divorce," give her assets to her husband, and put any equity that she had in a trust fund for her son. Batilla followed this advice even though her husband was against the idea. Due to the stress of the tax problems and her husband's unhappiness over the divorce, their "paper divorce" became a real divorce.

After the protest letter was sent, appellant's time-slips reflect no further activity on behalf of Batilla until January 20, 1987. In 1987, appellant had several telephone conferences with IRS representatives, met with Larry Fagen (Fagen) of the IRS, talked to Batilla once, talked to Owens at least twice, spent a...