Roberts v. Holland & Hart

• Decision Date: 28 January 1993
• Docket Number: No. 91CA1270,91CA1270
• Citation: 857 P.2d 492
• Parties: John H. ROBERTS, Jr. and RISCOR, Inc., Plaintiffs-Appellants and Cross-Appellees, v. HOLLAND & HART, Defendant-Appellee and Cross-Appellant. . IV
• Court: Colorado Court of Appeals

Page 492

857 P.2d 492

John H. ROBERTS, Jr. and RISCOR, Inc., Plaintiffs-Appellants and Cross-Appellees, v. HOLLAND & HART, Defendant-Appellee and Cross-Appellant.

No. 91CA1270.

Colorado Court of Appeals,

Div. IV.

Jan. 28, 1993.

Rehearing Denied March 4, 1993.

Certiorari Denied Aug. 30, 1993.

Bader & Villanueva, P.C., Jeffrey M. Villanueva, Denver, Weil & Petrocchi, P.C., Christopher M. Weil, Dallas, TX, for plaintiffs-appellants and cross-appellees.

Holme Roberts & Owen, Daniel J. Hoffman, Lawrence M. Zavadil, John R. Webb, Denver, for defendant-appellee and cross-appellant.

Opinion by Judge PLANK.

In this legal malpractice action against defendant, Holland and Hart, plaintiffs, John H. Roberts, Jr., and RISCOR, Inc., appeal from a partial summary judgment dismissing their claim for lost profits. Plaintiffs also appeal the trial court's ruling that they are entitled to damages only in the amount of the attorneys' fees paid for work negligently completed by Holland & Hart, rather than for all attorneys' fees paid to that firm. Finally, plaintiffs challenge the trial court's dismissal of certain claims assigned to RISCOR by application of the principle that legal malpractice claims are not assignable. Holland & Hart cross-appeals the trial court's denial of its motion for a directed verdict on damages because it claims Roberts failed to present evidence that he had paid or was liable for any of the attorney fees paid to the defendant. We affirm.

Roberts, a real estate developer, purchased Commerce Savings Association of Angleton, Texas (Commerce), which he used to facilitate real estate acquisitions and development.

In 1983, under Roberts' direction, Commerce hired Holland & Hart to handle the legal work necessary to acquire a number of properties in the town of Aspen. Roberts' goal was to develop a hotel, convention, and retail center on the properties. Holland & Hart's services to Commerce, and later it appears Roberts or another of his alter egos, Downhill Associates, Inc., consisted primarily of assistance in acquiring additional lots and obtaining the proper zoning for a Planned Unit Development (PUD).

In 1984, Roberts purchased Commerce's interest in the properties for $44 million, in exchange for a note and deed of trust in the same amount. A second mortgage by Mainland Savings (Mainland) encumbering the property in the amount of $16 million was obtained in 1985.

As part of the necessary land acquisitions, Commerce sought to exchange mining claims it owned on Aspen Mountain for land held by Aspen Ski Company (ASC) within the city of Aspen. ASC was also a client of Holland & Hart. Both clients consented to this dual representation and that is not an issue here.

Holland & Hart admits its negligence in drafting the legal description of Commerce's property which was exchanged for the ASC land. Basically, the legal description not only conveyed the mining claims, but the southern half of the town of Aspen, including all of the land within the PUD. However, since none of the parties realized the mistake, the PUD was recorded.

Roberts had negotiated for an operation agreement for a hotel to be built on part of the property with the Ritz-Carlton Hotel Company. Roberts alleges that all he needed then to complete the project was a financial lender. No major development project of Roberts had been successful, and Roberts was insolvent.

At this time, the property was still encumbered by the $44 million note to Commerce and the $16 million note to Mainland. In December of 1985, Commerce began foreclosure proceedings against the properties. By threatening Commerce with putting the entire project into Chapter 11 Bankruptcy, Roberts was able to negotiate an agreement that Commerce would foreclose the properties as two separate parcels. Roberts was basically interested only in the hotel site land, and, on March 9, 1986, Commerce agreed to divide the property into two parcels, to be bid on separately: one parcel for $17.5 million, and the second for the remainder of the amount owed.

The purpose of this agreement was to enable Roberts to redeem only the portion of the properties he was interested in for $17.5 million. Roberts asserts that he was having difficulty finding a financier for the entire $44 million and that it would have been easier to obtain financing for the lower amount. Thus, from the time of the contemplated foreclosure, March 10, 1986, Roberts would have had 75 days to redeem lots 1, 4, and 5, by finding a lender for the project.

In order to sustain a profit on the transaction, Roberts had to recover the $17.5 million redemption money, another $16 million to cover the second mortgage to Mainland, and several hundred thousand dollars in mechanics' liens also encumbering the properties. Thus, Roberts would have had to sell the property for over $34 million to make a profit.

On March 10, 1986, the error in the legal description was discovered. As a result, the foreclosure proceedings were stayed close to the end of the 75-day period, and an action was brought to quiet the title.

On March 27, 1987, a year after the initial agreement between Roberts and Commerce, the district court ordered that Commerce could go forward with the foreclosure, and further ordered that Commerce had to proceed according to the March 9, 1986, agreement between Commerce and Roberts, bidding the properties in two separate bids.

Roberts was unable to obtain the financing he needed in this second 75-day period. Through various agreements between Commerce and other parties, Roberts disassociated himself from the properties.

Sometime in 1987, Roberts, through Downhill Associates, made an assignment of 100% of his rights to the malpractice claim to RISCOR, Inc. In 1988, RISCOR, Inc., assigned back to Roberts 50% of the claim.

Roberts and RISCOR, Inc., subsequently brought this suit against Holland & Hart, alleging that but for the error in the legal description, Roberts would have obtained the financing necessary to complete the project. Roberts basically alleges that the change in the real estate markets and the collapse of the savings and loan industry which occurred during the time that the quiet title action was pending in the district court prevented him from obtaining the necessary financing.

I.

Plaintiffs first contend that the trial court erred by granting defendant's summary judgment motion dismissing RISCOR, Inc., from the suit because legal malpractice claims are not assignable. We disagree.

The question of assignability of legal malpractice claims has never been addressed in Colorado. We now hold that legal malpractice claims are not assignable.

While the law favors assignability of rights generally, it does not allow assignments for matters of personal trust or confidence, or for personal services. Matson v. White, 122 Colo. 79, 220 P.2d 864 (1950); Scott v. Fox Brothers Enterprises Inc., 667 P.2d 773 (Colo.App.1983).

In our view, the assignment of legal malpractice claims involve matters of personal trust and personal service and do not lend themselves to assignability because permitting the transfer of such claims would undermine the important relationship between an attorney and client.

In the fourteen jurisdictions in which the issue of assignability of legal malpractice claims has arisen, nine have held such claims non-assignable. Schroeder v. Hudgins, 142 Ariz. 395, 690 P.2d 114 (App.1984); Goodley v. Wank & Wank, Inc., 62 Cal.App.3d 389, 133 Cal.Rptr. 83 (1976); Mickler v. Aaron, 490 So.2d 1343 (Fla.Dist.Ct.App.1986); Brocato v. Prairie State Farmers Insurance Association, 166 Ill.App.3d 986, 117 Ill.Dec. 849, 520 N.E.2d 1200 (1988) appeal denied, 121 Ill.2d 567, 122 Ill.Dec. 434, 526 N.E.2d 827 (1988); Picadilly, Inc. v. Raikos, 582 N.E.2d 338 (Ind.1991); Coffey v. Jefferson County Board of Education, 756 S.W.2d 155 (Ky.App.1988); Thurston v. Continental Casualty Co., 567 A.2d 922 (Me.1989); Moorhouse v. Ambassador, Inc., 147 Mich.App. 412, 383 N.W.2d 219 (1985); Chaffee v. Smith, 98 Nev. 222, 645 P.2d 966 (1982); contra: Scarlett v. Barnes, 121 B.R. 578 (W.D.Mo.1990); Oppel v. Empire Mutual Insurance Co., 517 F.Supp. 1305 (S.D.N.Y.1981) (interpreting New York law); Collins v. Fitzwater, 277 Or. 401, 560 P.2d 1074 (1976); Hedlund Manufacturing v. Weiser, Stapler & Spivak, 517 Pa. 522, 539 A.2d 357 (1988).

We are persuaded by the reasoning in Goodley v. Wank & Wank, Inc., supra, and Picadilly, Inc. v. Raikos, supra. In Goodley, the court stated the following:

The assignment of such claims could relegate the legal malpractice action to the market place and convert it to a commodity to be exploited and transferred to economic bidders who have never had a professional relationship with the attorney and to whom the attorney has never owed a legal duty, and who have never had any prior connection with the assignor or his rights. The commercial aspect of assignability of choses in action arising out of legal malpractice is rife with probabilities that could only debase the legal profession. The almost certain end result of merchandizing such causes of action is the lucrative business of factoring malpractice claims which would encourage unjustified lawsuits against members of the legal profession, generate an increase in legal malpractice litigation promote champerty and force attorneys to defend themselves against strangers. The endless complications and litigious intricacies arising out of such commercial activities would place an undue burden on not only the legal profession but the already overburdened judicial system, restrict the availability of competent legal services, embarrass the attorney client relationship and imperil the sanctity of the highly confidential and fiduciary relationship existing between attorney and client.

Goodley v. Wank & Wank, Inc., 62 Cal.App.3d at 397, 133 Cal.Rptr. at 87. Accordingly, we hold that the assignment of legal malpractice claims is against public...