Schmidt v. Pearson, Evans and Chadwick

• Decision Date: 04 November 1996
• Docket Number: No. 95-519,95-519
• Citation: 931 S.W.2d 774,326 Ark. 499
• Parties: Paul A. SCHMIDT, Pauline B. Schmidt, Paul G. Schmidt and Acro Corporation, Appellants, v. PEARSON, EVANS AND CHADWICK, A Partnership; C. Thomas Pearson, Jr.; Marshall Dale Evans; Charles R. Chadwick; Stephen R. Bigger; Steven Tennant, P.A.; and Steven Tennant, Appellees.
• Court: Arkansas Supreme Court

Page 774

931 S.W.2d 774

326 Ark. 499

Paul A. SCHMIDT, Pauline B. Schmidt, Paul G. Schmidt and Acro Corporation, Appellants, v.PEARSON, EVANS AND CHADWICK, A Partnership; C. Thomas Pearson, Jr.; Marshall Dale Evans; Charles R Chadwick; Stephen R. Bigger; Steven Tennant, P.A.; and Steven Tennant, Appellees.

No. 95-519.

Supreme Court of Arkansas.

Nov. 4, 1996.

Harry McDermott, Fayetteville, for appellants.

Constance G. Clark, Fayetteville, for appellees Pearson, Evans and Chadwick, Marshall Dale Evans.

Walter B. Cox, Don A. Taylor, Fayetteville, G. Alan Wooten, Kathryn Stocks Campbell, Fort Smith, for appellees.

GLAZE, Justice.

The appellants, Paul A., Pauline B., and Paul G. Schmidt, bring this legal malpractice suit against attorneys C. Thomas Pearson, Jr., and Steven Tennant for their alleged negligence committed in Schmidt v. McIlroy Bank & Trust, 306 Ark. 28, 811 S.W.2d 281(1991).¹Schmidt involved the Schmidts' lender-liability action against McIlroy Bank & Trust.This court affirmed an award of summary judgment dismissing the Schmidts' suit against McIlroy Bank because they failed to make a timely amendment to their complaint alleging their status or standing as guarantors of their corporation's (Acro's) debts.In other words, the Schmidts had not pled any individual cause of action under their separate guaranty contract against the Bank.Presented with a case of first impression in Schmidt, this court held that filing a motion to amend the pleadings was unnecessary under Ark. R. Civ. P. 15(a), and that until the pleadings were amended and a request was made to strike a pleading, the trial court was not required to determine whether prejudice or undue delay would result from the amendment.Because the Schmidts had had ample time to amend their pleadings to allege their guarantor status, but had failed to do so, we upheld the trial court's granting of McIlroy Bank's second request for summary judgment, which dismissed the Schmidts' action.

We believe a recitation of the facts leading up to the present legal malpractice action might be helpful.The Schmidts were the sole shareholders of Acro Corporation, ² a family farming and egg-producing business.The Schmidts had had a business relationship with McIlroy Bank & Trust since 1976.At the time the lender-liability cause of action arose, McIlroy Bank held Acro's secured notes, mortgage, and checking accounts.The notes and the mortgage were secured by the personal guarantees of the Schmidts.In 1986, the Bank's employees were replaced by employees of Bancshares, which was in the process of purchasing the Bank.The evidence showed the Bank agreed to extend payments under the secured notes and to allow the Schmidts to temporarily overdraw on Acro's checking accounts.However, after Acro overdrew its checking accounts, the Bank closed the accounts, filed a foreclosure suit in chancery court, and made demand for payment under the secured notes.The Schmidts filed for Chapter 11 bankruptcies, but voluntarily dismissed them later.

The Schmidts, through their original attorney, Larry Froelich, then filed their lender-liability complaint in circuit court against the Bank, seeking $15 million in compensatory and $1 million in punitive damages for Acro and themselves as shareholders.However, as previously noted in our discussion of Schmidt, the Schmidts failed to request relief as guarantors.While those actions in circuit and chancery court were pending, the Schmidts employed attorney, C. Thomas Pearson, Jr., to pursue their lender-liability suit and to defend the Bank's foreclosure action.With the Schmidts' approval, Pearson engaged the assistance of Steven Tennant as co-counsel.

In 1988, the appellants' original counsel, Larry Froelich, withdrew, leaving Pearson and Tennant as attorneys of record in the lender-liability suit and Tennant as attorney of record in the foreclosure case.SeeMcIlroy Bank & Trust v. Acro Corp., 30 Ark.App. 189, 785 S.W.2d 47(1990)(where judgment for the Bank was reversed and remanded, because the chancellor signed the foreclosure consent decree in error).On retrial of the foreclosure action, the Bank was awarded $634,279.20 plus 10% attorney's fee.The Schmidts' property was sold at foreclosure for $30,000, leaving an outstanding judgment against them.

On August 3, 1990, the Schmidts filed a complaint against their attorneys for breach of contract and for legal malpractice in both the lender-liability and foreclosure actions.Specifically, the Schmidts alleged, among other things, that Pearson and Tennant willfully and negligently allowed Acro's corporate charter to be revoked, failed to properly dissolve Acro and preserve its cause of action against the Bank, and failed to properly amend the lender-liability complaint to include the Schmidts as guarantors.The Schmidts sought in excess of $7 million in damages and refund of all amounts paid to Pearson and Tennant.A jury trial was held on August 9-11, and September 15-16, 1994, and by interrogatories the ten-member jury found both Pearson and Tennant negligent.On September 26, the trial court entered judgment against Pearson and Tennant for damages of $880,609.74 in favor of the Schmidts and $3.1 million in favor of Acro.On that same date, Pearson and Tennant filed a motion for judgment notwithstanding the verdict, and in the alternative, for new trial and stay of judgment.

On October 25, the trial court entered its order granting Pearson and Tennant their motion for JNOV finding there was insubstantial evidence to support the verdict.The trial court also conditionally granted them a new trial because of other irregularities in the proceedings.On appeal from that order, the Schmidts argue the trial court abused its discretion in granting Pearson's and Tennant's motions for JNOV and new trial, and they also argue the trial court abused its discretion in finding it had erred by (1) failing to strike two veniremen; (2) failing to exclude hearsay evidence; and (3) allowing introduction of testimony regarding Pearson's and Tennant's expenditure of monies advanced for litigation costs.Because we find the Schmidts failed to show Pearson and Tennant negligently and proximately caused the Schmidts' damages, we affirm.

In reviewing this matter on appeal, we are guided by the rule that a trial court may enter judgment notwithstanding the verdict only if there is no substantial evidence to support the verdict of the jury and the moving party is entitled to judgment as a matter of law.McLaughlin v. Cox, 324 Ark. 361, 922 S.W.2d 327(1996).Furthermore, a trial court may not substitute its view for that of the jury, and the jury's verdict must be clearly against the preponderance of the evidence in order to be set aside.The standard regarding a motion for a new trial is the same.SeeArk. R. Civ. P. 50(b).Also, on appeal, this court views the evidence and all reasonable inferences therefrom in the light most favorable to the party for whom the original judgment was entered.McLaughlin, 324 Ark. at 368, 922 S.W.2d 327.

We next turn to those principles that control in legal malpractice actions, and we are met by the rule that an attorney is negligent if he or she fails to exercise reasonable diligence and skill on behalf of the client.Anthony v. Kaplan, 324 Ark. 52, 918 S.W.2d 174(1996).And, in order to prevail under a claim of legal malpractice, a plaintiff must prove that the attorney's conduct fell below the generally accepted standard of practice and that this conduct proximately caused the plaintiff damages.To show damages and proximate cause, the plaintiff must show that but for the alleged negligence of the attorney, the result in the underlying action would have been different.Id.;see alsoTyson Foods, Inc. v. Adams, 326 Ark. 300, 930 S.W.2d 374(1996);Callahan v. Clark, 321 Ark. 376, 901 S.W.2d 842(1995);Shaffer v. Wilkes, 65 F.3d 115(8th Cir.1995);Vanderford v. Penix, 39 F.3d 209(8th Cir.1994).

In deciding this case, we can assume the Schmidts presented sufficient proof to have prevailed in their underlying lender-liability action against McIlroy Bank.Even so, we conclude their evidence falls short in showing Pearson's and Tennant's actions negligently and proximately caused the Schmidts' damages.The Schmidts point to five instances where Pearson and Tennant negligently performed, causing the Schmidts to sustain damages.We consider each instance in the order the Schmidts discussed them in their brief.

The Schmidts first complain of Pearson's and Tennant's use of a $11,000 nonrefundable retainer for payment to themselves, other attorneys, and secretaries, rather than for discovery and copying costs.The Schmidts contend that they entered an oral, contingency contract with Pearson and Tennant, and agreed to provide them with an initial $10,000 retainer for discovery, deposition, and copying costs; apparently, an additional $1000 was paid later.The Schmidts argue Pearson and Tennant were negligent in the use of this retainer.

Whether Pearson and Tennant spent the retainer as the parties agreed is an issue dealing with breach of contract, and not one of negligence.SeeRobertson v. White, 633 F.Supp. 954(W.D.Ark.1986)(the failure to perform a promise implied in a professional relationship sounds in contract, rather than tort).On this point, we note that Paul G. Schmidt testified and conceded the $10,000 paid Pearson and Tennant was nonrefundable and, as a consequence, the evidence reflects there was no duty to return any portion of the retainer to the Schmidts.And while the Schmidts offered some testimony that the retainer should have been spent for depositions, they failed to show what depositions should have been taken or what depositions may have made a difference in proving their case.In addition, from the record as abstracted, the jury was not given an interrogatory on the Schmidts' breach-of-contract claim, nor did the jury...