Sickler v. Kirby

• Decision Date: 08 November 2011
• Docket Number: No. A–10–965.,A–10–965.
• Parties: Steve SICKLER et al., appellants, v. Robert KIRBY, individually, and Croker, Huck, Kasher, DeWitt, Anderson & Gonderinger, L.L.C., a Nebraska limited partnership, appellees.
• Court: Nebraska Court of Appeals

19 Neb.App. 286

805 N.W.2d 675

Steve SICKLER et al., appellants,

v.Robert KIRBY, individually, and Croker, Huck, Kasher, DeWitt, Anderson & Gonderinger, L.L.C., a Nebraska limited partnership, appellees.

No. A–10–965.

Court of Appeals of Nebraska.

Nov. 8, 2011.

Syllabus by the Court

1. Courts: Judgments: Judicial Notice. Where cases are interwoven and interdependent, and the controversy has already been considered and determined in a prior proceeding involving one of the parties now before the court, the court has a right to examine its own records and take judicial notice of its own proceedings and judgment in the prior action.

2. Summary Judgment. Summary judgment is proper when the pleadings and evidence admitted at the hearing disclose no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law.

3. Summary Judgment: Appeal and Error. In reviewing a summary judgment, an appellate court views the evidence in a light most favorable to the party against whom the judgment is granted and gives such party the benefit of all reasonable inferences deducible from the evidence.

4. Malpractice: Attorney and Client: Negligence: Proof: Proximate Cause: Damages. In a legal malpractice case, there are three basic components that compose the plaintiff's burden of proof: (1) the attorney's employment, (2) the attorney's neglect of a reasonable duty, and (3) that such negligence resulted in and was the proximate cause of loss to the client; these elements are the same general elements required in any other case based on negligence, i.e., duty, breach, proximate cause, and damages.

5. Attorney and Client. A lawyer's duty is to his or her client and does not extend to third parties absent some facts which establish a duty.

6. Corporations. The more closely held the corporation, the less separable the directors, officers, and owners are from the corporation.

7. Attorney and Client: Corporations: Conflict of Interest. A conflict of interest can be avoided if there is a clear understanding with the corporate owners that the attorney represents solely the corporation and not their individual interests.

8. Malpractice: Attorney and Client. Privity is not an absolute requirement for a legal malpractice claim.

9. Attorney and Client. A lawyer's duty to use reasonable care and skill in the discharge of his or her duties ordinarily does not extend to third parties, absent facts establishing a duty to them.

10. Attorney and Client: Parties: Negligence: Liability. Evaluation of an attorney's duty of care to a third party is founded upon balancing the following factors: (1) the extent to which the transaction was intended to affect the third party, (2) the foreseeability of harm, (3) the degree of certainty that the third party suffered injury, (4) the closeness of the connection between the attorney's conduct and the injury suffered, (5) the policy of preventing future harm, and (6) whether recognition of liability under the circumstances would impose an undue burden on the profession.

11. Attorney and Client: Parties: Intent. The starting point for analyzing an attorney's duty to a third party is determining whether the third party was a direct and intended beneficiary of the attorney's services.

12. Negligence. The determination of the existence of a duty and the identification of the applicable standard of care are questions of law, but whether there was a deviation from the standard of care, meaning that a party was negligent, is a question of fact.

13. Negligence: Evidence. In a negligence case, the fact finder must determine what conduct the standard of care requires under the circumstances as presented by the evidence, or as the fact finder determines the factual circumstances to be.

14. Attorney and Client: Juries: Expert Witnesses. To determine how an attorney should have acted in a given case, the jury will often need expert testimony describing what law was applicable to the client's situation.

15. Attorney and Client: Juries: Expert Witnesses. Expert testimony about the relevant law is often essential to assist the jury in determining what knowledge is commonly possessed by lawyers acting in similar circumstances and whether an attorney exercised common skill and diligence in ascertaining the legal options available to his or her client.

16. Appeal and Error. An appellate court is not obligated to engage in an analysis which is not necessary to adjudicate the case and controversy before it.

Richard J. Rensch and Sean P. Rensch, of Rensch & Rensch Law, for appellants.

William R. Johnson, of Lamson, Dugan & Murray, L.L.P., and Raymond E. Walden, of Walden Law Office, for appellees.

INBODY, Chief Judge, and SIEVERS and CASSEL, Judges.

INTRODUCTION

SIEVERS, Judge.

This is a legal malpractice action in which the district court for Buffalo County granted summary judgment to the defendant law firm of Croker, Huck, Kasher, DeWitt, Anderson & Gonderinger, L.L.C. (Croker Huck), and its member attorney Robert Kirby (collectively the defendants). In addition to claims that there were genuine issues of material fact for trial, we address issues generated by the fact that the defendants were engaged to represent only a closely held corporation, Baristas & Friends, Inc. (B & F), while the Kearney, Nebraska, law firm of Jacobsen, Orr, Nelson, Wright and Lindstrom, P.C. (Jacobsen Orr), represented the individuals owning and operating B & F, Steve Sickler (Steve) and Cathy Mettenbrink (Cathy). The litigation has its origins in the fact that attorney Jeffrey Orr of Jacobsen Orr drafted franchise disclosure statements that did not comply with applicable franchising law for use in selling franchises. We find that the summary judgment entered against B & F was error. We further conclude that Steve and Cathy were “third parties” to whom the defendants owed a duty of reasonable care. Finally, we conclude that what the standard of care was, whether it was breached, and what damages, if any, resulted are all genuine issues of material fact for trial with respect to B & F as well as Steve and Cathy.

FACTUAL AND PROCEDURAL BACKGROUND

In 2001, Steve and Cathy began operating a “European style” coffeehouse in Kearney named “Barista's Daily Grind.” The success of the coffeehouse caused them in 2002 to explore the franchising of their specialty retail coffee business, and they asked Orr to advise them on franchising laws and to prepare the necessary documents to sell franchises. Orr agreed to do so, although he had no expertise in, nor experience with, franchising that would qualify him to do this type of work.

B & F was formed to be the franchisor. Franchisees would do business under the name “Barista's Daily Grind Espresso to Go.” Steve and Cathy formed W.E. Corporation to own the real estate and buildings used in Steve and Cathy's own retail coffee business and in their franchising business. They formed another corporation, Cup–O–Coa, Inc., to be the distribution arm for products used by the franchisees of B & F. All of the corporations formed by Steve and Cathy paid rent to W.E. Corporation for their buildings. In October 2002, Orr completed a draft of the franchise agreement, and in December, he drafted the disclosure statement—a crucial document, as will be explained below. From 2003 to 2006, B & F sold 22 franchises and collected over $800,000 from the sales.

The beginning of the events that ultimately led to the underlying lawsuit, in which the defendants are accused of legal malpractice, began unfolding in July 2004. At that time, a banker in Colorado requested from Steve B & F's “Uniform Franchise Offering Circular” (UFOC) on behalf of a prospective franchisee. Steve did not know what a UFOC was, and he referred the banker to Orr. Orr determined that the disclosure statement being used—the statement in its first version—was “ ‘compliant and valid.’ ” State ex rel. Counsel for Dis. v. Orr, 277 Neb. 102, 104, 759 N.W.2d 702, 705 (2009). Steve testified that Orr told him the UFOC was a requirement of federal law which B & F was “ ‘probably going to have to get’ ” if it was “ ‘going to be selling franchises out of state.’ ” Id.

At this juncture, we note that a disciplinary proceeding was later instituted against Orr in which it was found that he had violated his oath of office and the attorney disciplinary rules requiring an attorney to competently represent a client. See Orr, supra. The Nebraska Supreme Court agreed with the referee's conclusion that Orr had negligently determined that he was competent to undertake this specialized franchising work for B & F and Steve and Cathy, and the court imposed a public reprimand as a sanction. See id. Where cases are interwoven and interdependent, and the controversy has already been considered and determined in a prior proceeding involving one of the parties now before the court, the court has a right to examine its own records and take judicial notice of its own proceedings and judgment in the prior action. State ex rel. Pederson v. Howell, 239 Neb. 51, 474 N.W.2d 22 (1991). Thus, some of our background derives from the Supreme Court's opinion in Orr's disciplinary proceeding.

In August 2004, Orr revised the franchise agreement and disclosure statement at Steve's request due to problems that B & F was having with a Des Moines, Iowa, franchisee whose attorney had sent a letter to Steve in February 2004 suggesting that B & F's disclosure statement delivered to the proposed Iowa franchisee did not comply with federal law. This resulted in Orr's production of the second disclosure statement—or “second edition,” as it is referenced at times in the record. Dennis Turnbull in Colorado and Jeffrey Nesler in Iowa purchased franchises after receiving the second disclosure statement, as did others.

In October 2004, B & F filed suit with Jacobsen Orr as counsel in the district...