Shoemake ex rel. Guardian v. Ferrer

Decision Date04 February 2010
Docket NumberNo. 81812-6.,81812-6.
Citation225 P.3d 990,168 Wn.2d 193
PartiesAndrea SHOEMAKE, by and through a GUARDIAN ad litem to be appointed, and Keith Shoemake, and their marital community, Respondents, v. R. Douglas P. FERRER and Jane Doe Ferrer, husband and wife, Petitioners.
CourtWashington Supreme Court

John Woodruff Rankin Jr., Reed McClure, Seattle, WA, for Petitioners.

Robert B. Gould, Attorney at Law, Seattle, WA, for Respondents.

STEPHENS, J.

¶ 1 This case presents an issue of first impression involving a determination of damages for legal malpractice. After he admitted liability, the trial court ordered attorney-petitioner Douglas Ferrer to pay client-respondents Andrea and Keith Shoemake interest on a settlement that the Shoemakes would have received had Ferrer not mishandled their case. The trial court calculated the interest on a figure of $60,000, representing the $100,000 settlement less Ferrer's 40 percent contingency fee.1 The Court of Appeals reversed, holding that the prejudgment interest in this case should have been calculated on the total amount of the settlement lost, not the amount the Shoemakes would have recovered after paying a contingency fee. We affirm the Court of Appeals and hold that the respondents' prejudgment interest award may be calculated to include the negligent attorney's fees.

FACTS AND PROCEDURAL HISTORY

¶ 2 In 1992, Andrea Shoemake was badly injured in a car accident when a drunk driver, Joseph Hernandez, hit her head-on. She and her husband, Keith Shoemake, engaged the services of attorney Douglas Ferrer to pursue recovery from Hernandez and the Shoemakes' underinsured motorist insurance carrier, State Farm. They agreed on a 40 percent contingency fee.

¶ 13 Ferrer mishandled the case. He did not file the complaint until April 7, 1995, just two days before the statute of limitations expired, and then failed to file the required confirmation of joinder pleading, resulting in dismissal of the case on March 6, 1996. Shoemake v. Ferrer, 143 Wash.App. 819, 821, 182 P.3d 992 (2008). Ferrer was able to convince a judge to allow the claim to proceed but then failed to show up for the first day of trial. Id. at 821-22, 182 P.3d 992. He also did not notify the Shoemakes, who live out of state, of the trial date. Id. at 822, 182 P.3d 992. The court dismissed the Shoemakes' complaint for the second time. Id.

¶ 4 Ferrer did not tell the Shoemakes that their case had been dismissed. Instead, for several years he told them the delay was due to a backlog at the court and that the court was too busy to consider their claims. Finally in 2005, Andrea Shoemake called the court herself and learned of Ferrer's deceit. When she confronted him, he claimed he would try to get the case reinstated, but he did not.

¶ 5 The Shoemakes hired attorney Robert Gould to pursue the personal injury claim and sue Ferrer for malpractice. Through Gould, the Shoemakes learned that in 1995 State Farm had offered to pay the limit on the Shoemakes' uninsured motorist policy, $100,000. Ferrer had never communicated this settlement offer. Gould recovered the settlement money and then filed a suit against Ferrer alleging legal malpractice and breach of fiduciary duty. He sought damages in the form of interest on the $100,000 payment for the 10 years the Shoemakes had to wait for recovery. The Shoemakes also sought an award of attorney fees "as a result of defendant's flagrant breach of his fiduciary duty to his clients." Clerk's Papers (CP) at 5.

¶ 16 Ferrer admitted liability. The only issue, then, was the amount of damages. Ferrer claimed that his 40 percent contingency fee should be subtracted from the $100,000 before calculating interest. The trial court agreed. Stated numerically, the trial court awarded $60,000 (the settlement award of $100,000 minus 40 percent) plus $70,511.58 (prejudgment interest on the $60,000) minus $100,000 (the payment made by State Farm to the Shoemakes) to equal $30,511.58. The trial court also awarded the Shoemakes reasonable attorney fees as a sanction for Ferrer's fiduciary breach, in the amount of $14,893.37.

¶ 7 Both parties appealed. Ferrer challenged the attorney fee award. The Shoemakes challenged the reduction of Ferrer's 40 percent contingency fee prior to calculating interest. The Court of Appeals reversed the trial court's award of attorney fees because it concluded that a breach of a fiduciary duty was not a recognized ground in equity allowing such an award in the absence of a statute or contract authorizing the award. But the Court of Appeals declined to subtract Ferrer's 40 percent contingency fee from the Shoemakes' award. Stated numerically, the Court of Appeals held the Shoemakes were entitled to $100,000 (the settlement amount without deducting Ferrer's fee) plus $117,519.31 (prejudgment interest on the delayed $100,000 settlement) minus $100,000 (the payment made by State Farm to the Shoemakes), for a total of $117,519.31.

¶ 8 Ferrer petitioned for review, and the Shoemakes cross-petitioned on the issue of whether they could collect reasonable attorney fees in the malpractice action. This court granted Ferrer's petition for review but denied the Shoemakes' cross-petition. Shoemake v. Ferrer, 165 Wash.2d 1007, 198 P.3d 513 (2008).

ANALYSIS

¶ 9 "Generally, the appropriate measure of damages for a given cause of action is a question of law, reviewed de novo." Womack v. Von Rardon, 133 Wash.App. 254, 263, 135 P.3d 542 (2006) (citing Fisher Props., Inc. v. Arden-Mayfair, Inc., 106 Wash.2d 826, 843, 726 P.2d 8 (1986)). Legal malpractice claims may sound in tort or contract. 16 DAVID K. DEWOLF & KELLER W. ALLEN, WASHINGTON PRACTICE: TORT LAW AND PRACTICE § 15.41, at 491 (3d ed.2006). Here, the Shoemakes alleged that Ferrer was negligent and breached his fiduciary duty, seeking damages on a tort theory of recovery. CP at 3.

¶ 10 "`The guiding principle of tort law is to make the injured party as whole as possible through pecuniary compensation.' ... Simply stated, a plaintiff is entitled to that sum of money that will place him in as good a position as he would have been but for the defendant's tortious act." 16 DeWolf & Keller, supra, § 5.1, at 172 (footnote omitted) (quoting Aker Verdal A/S v. Neil F. Lampson, Inc., 65 Wash.App. 177, 183, 828 P.2d 610 (1992)). The plaintiff should be made whole without conferring a windfall. Id. at 180 n. 1, 828 P.2d 610. When a plaintiff seeks prejudgment interest, the award should compensate "the plaintiff for the `use value' of his damage amount from the time of loss to the date of judgment." Matson v. Weidenkopf, 101 Wash.App. 472, 485, 3 P.3d 805 (2000) (citing Hansen v. Rothaus, 107 Wash.2d 468, 473, 730 P.2d 662 (1986)).

¶ 11 The parties here agree that the Shoemakes are entitled to prejudgment interest but disagree about how to calculate interest to make the Shoemakes whole without conferring a windfall. Ferrer argues that had he acted without negligence, the Shoemakes never would have received the full $100,000 from State Farm, but at most only 60 percent of that sum. Because damages are intended to place the plaintiff in as good a position as she would have been had the tort not occurred, Ferrer argues his contingency fee must be subtracted from the award. And because the Shoemakes would never have received that 40 percent portion of the settlement, he argues they were not deprived of its use, so prejudgment interest on the hypothetical contingency fee is inappropriate. To allow the Shoemakes interest on the entire $100,000 settlement, Ferrer argues, results in a windfall for them and effectively imposes punitive damages against him.

¶ 12 The Shoemakes counter that they cannot be made whole unless Ferrer's contingency fee is credited to their award because they were required to pay a second attorney to complete the job Ferrer failed to do. Suppl. Br. of Resp. at 2. Further, they note fee forfeiture serves the remedial purpose of offering injured clients an incentive to litigate against a wrongdoer. Suppl. Br. of Resp'ts at 9 n. 3, 11 n. 5.

¶ 13 We are thus presented with two competing ways to resolve this case. Although we have not yet considered this question in Washington, several other jurisdictions and academic sources have. The Court of Appeals discussed many of them, and noted that the various authorities are sharply divided on how to resolve the question. A minority view advocates reducing a plaintiff's award by the amount the negligent attorney would have recovered had he or she fully performed. The justification for this view is summarized in a leading treatise on the subject of legal malpractice.

The rationale in trading off the client's legal fees in the malpractice action for the defendant's fees in the underlying action essentially allows a party to recover attorneys' fees in a negligence action. ... In a legal malpractice case, however, the issue is the client's measure of damages. If the client would have had to pay the defendant or any other attorneys' fees to receive full performance, the value of proper performance, which sets the initial measure of damages, should be reduced by that amount, particularly where the lawyer has rendered services.

3 RONALD E. MALLEN & JEFFREY M. SMITH, LEGAL MALPRACTICE § 21.18, at 71-72 (2009) (footnote omitted).2 The majority view, on the other hand, refuses to deduct the negligent lawyer's fee in calculating damage to the plaintiff. This is the view espoused by the authors of the Restatement (Third) of The Law Governing Lawyers.

When it is shown that a plaintiff would have prevailed in the former civil action but for the lawyer's legal fault, it might be thought that—applying strict causation principles—the damages to be recovered in the legal-malpractice action should be reduced by the fee due the lawyer in the former matter. That is, the plaintiff has lost the net amount recovered after paying that attorney fee. Yet if...

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