Sherry v. Diercks, 8116-1-I

CourtCourt of Appeals of Washington
Citation29 Wn.App. 433,628 P.2d 1336
Decision Date26 May 1981
Docket NumberNo. 8116-1-I,8116-1-I
PartiesLeo J. SHERRY, Appellant, v. Robert J. DIERCKS and Jane Doe Diercks, his wife; Foster, Pepper & Riviera, a partnership, and Thomas B. Foster, et ux.; Louis H. Pepper, et ux.; Daniel J. Riviera, et ux.; Peter V. Gulick, et ux.; William H. Ellis, Jr., et ux.; David W. Sandell, et ux.; Richard E. Keefe, et ux.; Camden M. Hall, et ux.; Michael E. Stansbury, et ux.; Jerome D. Whalen, et ux.; Charles P. Nomellini et ux., Respondents.
Edward D. Campbell, Seattle, for appellant

Evan E. Inslee, Bellevue, for respondents.



This is an appeal from a judgment dismissing the plaintiff's case in a legal malpractice action.

The plaintiff is Leo J. Sherry, who will be referred to as the client. He brought this action against his former attorney, Robert J. Diercks, and the partners in the Seattle law firm of Foster, Pepper and Riviera, in which Mr. Diercks was then an associate and is now a partner. For convenience, we will refer to Mr. Diercks as though he were the sole defendant.

The client is a ground test operations engineer for the Boeing Company. He has in the past invested in the stock market. He has also traded extensively in the commodities market. This litigation has its inception in the client's commodities

market dealings

As the evidence in the case underscores, commodities speculation is not for the fainthearted but is one of the riskiest financial activities legally available to the general public. Commodity futures trading takes place in futures exchanges. One's wits determine success or failure and that success or failure can be striking indeed.

The client, Mr. Sherry, was a commodity trader on his own behalf in the early 1970's. Through a series of different brokers, he had speculated in silver, cotton, pork bellies, cattle and livestock. In 1970, he opened an account with the brokerage firm of Bache & Company (now Bache, Halsey, Stuart, Inc.), hereinafter referred to as the broker, and subsequently purchased stock and futures contracts through that firm. After returning from several years abroad, the client resumed trading with Bache. On the tip of a friend, he invested in the potato futures market in the fall of 1975. As with most of the client's commodities trading, his account with Bache was a "nondiscretionary" account, that is, the client personally directed his broker in making all purchases and sales of futures contracts for his account. By contrast, a "discretionary" account is one where the purchases and sales are left to the broker's discretion. Everything in the record suggests that the client was well aware of the financial risks he ran in his commodity futures trading.

The client's trading in potato futures was ultimately unsuccessful. He ended up owing his broker $16,715 on his commodity futures brokerage account, which he did not pay apparently because he did not have it. [628 P.2d 1338] When he was eventually sued for the balance owing on his account, he sought the legal services of Mr. Diercks.

As a result of his losses, the client was on the verge of bankruptcy. The attorney and client discussed bankruptcy and also the possibility of defending against the broker's lawsuit. The attorney agreed to defend against the broker's suit and to file a counterclaim against the broker, with his fee to be paid out of the counterclaim proceeds, if any. The

attorney appeared on behalf of the client, filed the necessary pleadings and proceeded to investigate a number of potential defenses and bases for the counterclaim. The attorney ultimately concluded that the case could not be successfully defended and that the client owed the money for which his broker was suing

The attorney and client discussed this the week prior to the scheduled jury trial. In the presence of the client, and with the concurrence of the client or at least without his objection, the attorney telephoned the broker's attorney and informed him that there would be no trial and that a default could be taken. Shortly thereafter differences arose between the client and the attorney, the details of which need not be chronicled here. Suffice to say, the broker obtained an order of default and a judgment against the client for its $16,715 claim plus interest and the client went to another attorney.

The client's new attorney sought to set aside the order of default and judgment. When he was unsuccessful in doing so, the client brought a pro se action in federal district court against the broker, certain of its employees and state officials under 42 U.S.C.A. § 1985 alleging that he had been deprived of his civil rights. The court dismissed the action and at the time of this trial the case was on appeal. Acting through his new counsel, the client also brought the present legal malpractice action against his former attorney.

In the legal malpractice action, the trial court granted the attorney's challenge to the sufficiency of the client's evidence and dismissed the case. The client's appeal to this court presents two issues.


ISSUE ONE. To recover in a legal malpractice action based on an attorney's failure to defend the client's case, does the client have the burden of proving that he would have prevailed in the underlying action?

ISSUE TWO. Did the client prove that he had any meritorious defenses to the broker's claim for monies owed?



CONCLUSION. To establish the element of proximate causation in a legal malpractice action based on the claim of an attorney's failure to defend, the client must establish in a "suit within a suit" that if the action had been defended, the client would have prevailed or achieved a better result in that action.

The elements of a legal malpractice action are: (a) the existence of an attorney-client relationship; (b) the existence of a duty on the part of the lawyer; (c) failure to perform the duty; and (d) the negligence of the lawyer must have been a proximate cause of the damage to the client. Hansen v. Wightman, 14 Wash.App. 78, 88, 538 P.2d 1238 (1975).

As to the burden of proof in such cases, we further held in Hansen that "(t) he burden of proving that an attorney has been negligent or failed to act with proper skill and that damages resulted therefrom is on the plaintiff client" and that "(l)ikewise, the burden is on the plaintiff to show that the negligence of the attorney was a proximate cause of the client's damage." Hansen v. Wightman, supra at 88, 538 P.2d 1238.

The client's claim of legal malpractice in this case is based on the following theories or a combination thereof: the attorney's failure to appear at trial and defend the client; the attorney's failure to pursue or establish meritorious defenses; the attorney's wrongful withdrawal from the case; and the attorney's failure to obtain a continuance of the trial to enable the defendant to retain the services of another attorney. All of the client's theories sound in tort.

Causation is the sometimes fragile thread which must connect the concept of fault to the reality of damage. The principles and proof of causation in a legal malpractice action do not differ from an ordinary negligence case. Ward v. Arnold, 52 Wash.2d 581, 584, 328 P.2d 164 (1958). To establish a cause of action under any of the mentioned theories of recovery, the client had to establish that the claimed negligence of the attorney was a proximate cause of his damage.

In this case the foregoing rules required that the client show that if the broker's action against him had been defended, the client would have prevailed or at least would have achieved a better result. As one text summarizes the law in this regard,

The final, and very common, issue is whether the attorney's negligence caused damage. Thus, if a client would not have succeeded in the defense of an action or been subjected to a lesser judgment, the attorney's negligence could not have caused damage.

(Footnote omitted.) R. Mallen & V. Levit, Legal Malpractice § 331, at 413 (1977). Accord, Martin v. Nichols, 110 Wash. 451, 453-54, 188 P. 519 (1920). For the client to recover against the attorney, therefore, he first had to establish that he had a defense to his broker's action against him.

The client argues, in effect, that once he showed that the attorney did not defend the client, the burden of proof should shift to the attorney to justify the entry of the default judgment. That is not the law of this state. We are not persuaded that there is any logical justification to vary the foregoing well established principles of proximate causation and burden of proof in such cases.


CONCLUSION. The client failed to show that he had a meritorious defense to the broker's claim for monies owed. Violation of industry suitability standards by a commodity futures broker is not an independent basis for liability under the Commodity Exchange Act, 7 U.S.C.A. § 6b; and under the common law a commodity futures broker has no duty to determine a customer's suitability where, as here, the customer's account is nondiscretionary.

Although a claim based on federal securities law must be brought in federal court under 15 U.S.C.A. § 78aa, that law may be asserted as a defense to a claim brought in state court. Shareholders Management Co. v. Gregory, 449 F.2d 326 (9th Cir. 1971); Birenbaum v. Bache & Co., 555 S.W.2d 513 (Tex.Civ.App.1977). See also Herron Northwest, Inc. v. Danskin, 1 Wash.App. 818, 819, 464 P.2d 435, rev'd on other grounds, 78 Wash.2d 500, 502, 476 P.2d 702 (1970). For the purposes of the present case, we assume that a defense based on the Commodity Exchange Act may also be asserted in state court.

The client appears to contend that he was not "suitable" to engage in commodity futures trading because of a lack of financial resources. The client argued in the trial...

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