Rice v. Perl
| Citation | 320 NW 2d 407 |
| Decision Date | 11 June 1982 |
| Docket Number | No. 51792.,51792. |
| Parties | Cecilia E. RICE, Appellant, v. Norman PERL and Richard Hunegs, individually and d.b.a. DeParcq, Anderson, Perl, Hunegs & Rudquist; DeParcq, Anderson, Perl, Hunegs & Rudquist, P. A., Respondents, W. F. Browne, Respondent, Aetna Casualty & Surety Company, Respondent. |
| Court | Supreme Court of Minnesota (US) |
Post, Syrios & Bradshaw, Bradley Post and Arden J. Bradshaw, Wichita, Kan., for appellant.
Meagher, Geer, Markham, Anderson, Adamson, Flaskamp & Brennan, O. C. Adamson II, and W. D. Flaskamp, Minneapolis, for Perl et al.
Larkin, Hoffman, Daly & Lindgren and James P. Miley, Minneapolis, for Browne.
Collins, Buckley, Sauntry & Haugh and Theodore J. Collins, St. Paul, for Aetna.
Heard, considered and decided by the court en banc.
This is an appeal by plaintiff Cecelia Rice, and a request for review by defendants Norman Perl and the law firm of DeParcq, Anderson, Perl, Hunegs and Rudquist, (hereinafter "the Perl defendants"), resulting from findings that defendants breached their fiduciary duty to Rice, their client, by failing to disclose their ongoing relationship with defendant Willard Browne, a claims adjuster employed by defendant Aetna Casualty & Surety Co.
The Perl firm was paying Browne during the time he was representing Aetna in negotiations with the Perl firm to settle Rice's claim against Aetna's insured. The trial court dismissed all other claims against the Perl defendants and all claims against defendants Richard Hunegs individually, Browne, and Aetna. We affirm the finding of liability and the penalties for breach of fiduciary duty.
This suit grew out of the Perl defendants' representation of Rice in the settlement of her tort claim against A. H. Robins Co., an insured of Aetna. Rice was allegedly injured as a result of using a "Dalkon Shield" intrauterine device manufactured by A. H. Robins Co. She was referred by a friend to Norman Perl. They met in September 1977, discussed her claim, and signed a retainer agreement, with fees to be paid on a contingent basis. Perl and Rice next met in late January 1978 to discuss a proposed settlement in the amount of $50,000 that Perl had negotiated with Aetna, A. H. Robins Co.'s insurer in all Dalkon Shield matters.
On February 9, 1978, Rice executed the settlement agreement and signed a broad "full and final" release running to A. H. Robins Co. "and all other persons, firms or corporations" from all claims "known and unknown, suspected and unsuspected" resulting from her Dalkon Shield injury.1
The Dalkon Shield settlement was negotiated by Perl with Willard Browne, an Aetna claims adjuster of 35 years experience and a "good friend" of Perl's for at least five or six years. It is undisputed that from 1976 through 1979, Browne was simultaneously employed and paid as a claims adjuster by Aetna and by the Perl firm on a part-time basis. Therefore, during the same period of time that Browne was supposed to be vigorously representing Aetna in Dalkon Shield claims, including Rice's claim, he was receiving payments from the Perl firm, an adversary as to those claims.
Payments made by the Perl firm to Browne were estimated by Perl to be: $7,000 in 1976, $1,500-2,000 in 1977, $10,000 in 1978, and $20,000 in 1979. Browne was paid both by checks drawn on the firm's general operating account and by having the firm pay travel agencies for trips for Browne and his wife. Such accounting practices were exceptional. Normal firm practice was for the bookkeeper to pay outside consultants directly, after receiving itemized billings for services rendered. With Browne, the bookkeeper drew checks in an amount specified by Perl, and gave the check to Perl. Perl then paid Browne directly.
Normal accounting procedures for consulting expenses were also bypassed in another significant respect. Normally, the bookkeeper posted the itemized billing amounts directly to ledger books for each client. With Browne, however, the bookkeeper randomly posted the payments, subdivided into smaller amounts of $75 to $150, to accounts of FELA files handled by the firm. This was done without any attempt to connect the services Browne may have actually performed with the accounts of clients for whom the work was done.2
It is undisputed that neither Perl nor Hunegs, as the attorneys who represented Rice and settled her fees dispute, respectively, ever informed Rice of her attorney's relationship with, and payments to, the insurance adjuster settling her claim. Rice had no knowledge of the Browne-Perl relationship until long after she signed both settlements and releases involved in this case. When Rice learned of this relationship, she initiated the instant suit claiming fraud, breach of fiduciary duty, and legal malpractice against the Perl defendants, civil conspiracy against all defendants, and negligent entrustment against Aetna.
This appeal comes by a procedural route which requires some explanation. After Rice filed the suit in early January, 1980, defendants answered in mid-to late January and simultaneously filed motions for summary judgment. One argument on these motions was heard before Judge Patrick W. Fitzgerald on February 1, 1980. At the conclusion of this hearing, all counsel agreed to stipulate that all discovery then outstanding as between the parties would be stayed pending the court's decision on summary judgment. An order to this effect was circulated among counsel and filed under Judge Fitzgerald's signature on February 14.
In the three days preceding the summary judgment hearing, counsel appeared before Judge Fitzgerald numerous times to argue motions and to request assistance in the taking of depositions.
On January 29, Judge Fitzgerald simultaneously denied defendants' motion to quash depositions noticed by plaintiff for January 30 and 31, and denied Rice's motion to continue the summary judgment hearing scheduled for February 1 until such time as would permit a reasonable amount of discovery to be undertaken. No explanation was given for either ruling.
On January 30, Judge Fitzgerald fully disclosed, on the record, a long history of personal, social and professional relationships with the defendants and with several of the defense counsel. At this time, Rice's counsel requested Judge Fitzgerald to voluntarily disqualify himself. The judge refused, and Rice's counsel declined to file an affidavit of prejudice.
On February 15, while the case was under consideration, Rice again asked Judge Fitzgerald to disqualify himself to avoid the necessity for filing an affidavit of prejudice under Minn.R.Civ.P. 63.03. The judge permitted the filing of the affidavit, which this court approved on March 28, 1980. The case was then transferred to Judge Gordon L. McRae.
After hearing arguments on the issue, Judge McRae decided to resolve the summary judgment motions in reliance upon the record submitted to Judge Fitzgerald, rather than reopening the record for further discovery.3
Judge McRae disposed of the entire case by summary judgment. First, he found that Rice had "never expressed any dissatisfaction with the terms of the A. H. Robins Co. settlement agreement" and ruled that Rice had the burden of alleging damages. Since Rice had not met her burden, Judge McRae summarily dismissed all of the substantive claims which required proof of damages. Second, Judge McRae found that, whether or not damages are alleged, when an attorney fails to disclose to his client "all matters bearing upon the enforcement of her rights and * * * even whether to retain an attorney," the attorney has breached his fiduciary duty and forfeits attorneys' fees.
Because of our disposition of this case, we address only two issues:
1. Perl defendants dispute both Judge McRae's holding that they were liable for a breach of fiduciary duty and his forfeiture of their attorneys' fees.
Judge McRae found that defendant Perl breached his fiduciary duty to Rice by failing to disclose to her that he and his firm were making payments to Browne, the claims adjuster responsible for her Dalkon Shield claim. The court, therefore, granted summary judgment to Rice on this issue. Perl should have disclosed this information, the court held, even assuming the veracity of defendants' explanation that Browne was hired as consultant only with respect to FELA cases handled by the Perl firm. The governing rule was stated by the court to be as follows: an attorney has a "duty to disclose any material matter bearing upon the attorney's duty to represent the client with undivided loyalty." Since Perl definitely failed to disclose his relationship to Browne, which the court deemed to be a "material matter," there was no genuine dispute as to any material fact and summary judgment was awarded plaintiff on this claim.
The Perl defendants dispute this finding on two grounds: (1) the court misinterpreted the relevant precedents to require a broader disclosure rule than exists in the law; and (2) even under the trial court's rule, defendants had no duty to disclose.
As to the first ground, Perl defendants are mistaken. The trial court's formulation of the disclosure rule is the dominant one in the United States:
The fiduciary obligations which are the premise of trust may be simply stated. The attorney is under a duty to represent the client with undivided loyalty, to preserve the client\'s confidences, and to disclose any material matters bearing upon the representation of these obligations. Although the phrasing of this definition of fiduciary obligations is varied and often dependent upon the context of particular circumstances, this rule exists in virtually every jurisdiction in the United States.
R. Mallen & V. Levit, Legal Malpractice, § 121 at 208 (2nd ed. 1981) (...
To continue reading
Request your trial