Smith v. Preston Gates Ellis, Llp

• Decision Date: 23 October 2006
• Docket Number: No. 56415-3-I.,56415-3-I.
• Citation: 147 P.3d 600,135 Wn. App. 859
• Court: Washington Court of Appeals
• Parties: Terry R. SMITH, a married person, for and on behalf of his separate estate, Appellant, v. PRESTON GATES ELLIS, LLP and Thomas H. Wolfendale and Jane Doe Wolfendale, his wife, and the marital community comprised thereof, Respondents.

Page 600

147 P.3d 600

135 Wn. App. 859

Terry R. SMITH, a married person, for and on behalf of his separate estate, Appellant, v. PRESTON GATES ELLIS, LLP and Thomas H. Wolfendale and Jane Doe Wolfendale, his wife, and the marital community comprised thereof, Respondents.

No. 56415-3-I.

Court of Appeals of Washington, Division 1.

October 23, 2006.

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

Stephen J. Sirianni, Jonathan P. Meier, Sirianni Youtz Meier & Spoonemore, Seattle, WA, for Respondents.

APPELWICK, C.J.

¶ 1 Terry Smith brought a legal malpractice case for negligence relating to the construction contract on his "dream home." He contends that if defendants had informed him of the risks of the contract he would not have entered into the contract and would not have experienced cost overruns, delays and alleged contractor malfeasance. The trial court granted summary judgment to defendants Preston Gates Ellis, LLP and Tom Wolfendale (collectively Preston) because plaintiff failed to provide evidence of proximate causation. We affirm.

FACTS

¶ 2 Terry Smith established the credit department and hired and supervised the credit collection staff at Preston Gates Ellis, LLP. He worked at Preston for 14 years before retiring in February 2000. In 1996 Smith began thinking about building his "dream home." He found a site for the home and purchased 37 acres on Kitsap Peninsula in 1998. The same year he engaged contractor Dan Hosfeldt (Hosfeldt), and his company Olympic Timber Builders, to build a small cabin on the property on the footprint of an existing shed. To this end, he and Hosfeldt verbally agreed on a "cost plus" arrangement where Smith would pay the cost of the materials and labor plus an additional 20 percent. Hosfeldt completed the project in the spring of 1999 for approximately $100,000 which was above the estimated price of $75,000 for the cabin. By October 1998, Smith had orally agreed to engage Hosfeldt as the contractor on a "cost plus" basis for the building of his "dream home." Pursuant to this oral agreement, Hosfeldt began site work including tearing down the existing home and installing a new septic system in late 1998. On January 15, 1999, Smith signed a contract with Pioneer Log Homes for a log cabin home without consulting an attorney. He paid approximately $200,000 for the log shell. Hosfeldt was to interact with Pioneer Log Homes to build the structure and apply the log shell. The final, written contract with Hosfeldt for construction of the main home was not signed until May 15, 1999.

¶ 3 In mid-January 1999, Smith received a separate "cost plus" contract from Hosfeldt covering construction of the main house and he took the contract to his former employers at Preston for help in evaluating the terms. He spoke with partner Robert Jaffe who recommended Tom Wolfendale. Jaffe told Smith that Wolfendale had been the lawyer for Bill Gates, III on his Medina home. Smith took the contract to Wolfendale and requested his assistance. He told Wolfendale, "I'm going to be building this home. I want to make sure I'm protected." Wolfendale apparently reviewed the contract and engaged in some negotiation with Hosfeldt's attorney, Steve Dixon. He devoted about six hours of work to the project before he told Smith the contract was ready. Smith reviewed and signed the contract on May 15, 1999.

¶ 4 Unfortunately, Smith encountered serious trouble during the construction of his "dream home." The project greatly surpassed Smith's desired budget. In addition, he concluded that his contractor was engaged in fraud and overbilling. Smith discovered that an employee, Blaine Lee, had been fired by Hosfeldt after he asked for a raise. Upon speaking with Lee, Smith learned that Lee was being paid $20 per hour instead of the contractually stipulated price of $35 per hour. He then hired his attorney, James Oliver and they determined that Hosfeldt was paying the employees less than the agreed rates and keeping the difference. Smith eventually fired Hosfeldt and employed another contractor to complete the project. At the same time, Smith encountered significant financial losses on his investments as a result of the technology stock collapse. By the time of its completion, the "dream home" had become a nightmare that had consumed most of the Smith's resources leaving him unable to afford to live in it. In 2004, Smith sold the home and property for over $4.1 million.

¶ 5 Smith sued his contractor alleging fraud, overbilling, unnecessary construction and negligent construction. Even though his attorney, James Oliver thought the case was probably a winner and that many of the claims would have been covered by the insurance, Smith settled. The decision to settle was prompted by Hosfeldt's limited corporate and personal assets, limited insurance coverage of the claims, Smith's ill health, the trauma and risk of going to trial and inability to incur more legal costs. Smith spent approximately $150,000 in legal fees on this suit but eventually settled for $60,000 on the advice of his attorney who advised him that the settlement was reasonable. Smith then sued Preston alleging legal malpractice, claiming if he had known about the risks inherent in the contract he would never have signed and would not have encountered the problems he faced in building his "dream home." He claimed a minimum of $1,776,000 in economic damages arising from the negligent representation.

ANALYSIS

¶ 6 When reviewing a summary judgment order, the appellate court undertakes the same inquiry as the trial court. Thompson v. Peninsula School District, 77 Wash.App. 500, 504, 892 P.2d 760 (1995). Summary judgment is proper when there are no genuine issues of material fact and the moving party is entitled to a judgment as a matter of law. CR 56(c). The moving party bears this burden of proof. Young v. Key Pharmaceuticals, Inc., 112 Wash.2d 216, 225, 770 P.2d 182 (1989). "A material fact is one upon which the outcome of the litigation depends." Barrie v. Hosts of Am., Inc., 94 Wash.2d 640, 642, 618 P.2d 96 (1980). The non-moving party cannot rely on speculation but must assert specific facts to defeat summary judgment. Seven Gables Corp. v. MGM/UA Entm't Co., 106 Wash.2d 1, 13, 721 P.2d 1 (1986). All facts and inferences are considered in the light most favorable to the non-moving party. Ashcraft v. Wallingford, 17 Wash.App. 853, 854, 565 P.2d 1224 (1977). In this case, the facts and inferences should be construed in Smith's favor.

¶ 7 Legal malpractice requires a showing of (1) the existence of an attorney client privilege giving rise to a duty of care to the client, (2) act or omission in breach of the duty, (3) damages to the client, and (4) proximate causation between the breach and damages. Sherry v. Diercks, 29 Wash.App. 433, 437, 628 P.2d 1336 (1981). For the purposes of summary judgment, Preston conceded the issues of duty and breach of duty, and brought the motion based on causation.

¶ 8 In a legal malpractice case the burden is on the plaintiff to show that the attorney's negligence was the proximate cause of the injury. Hansen v. Wightman, 14 Wash.App. 78, 88, 538 P.2d 1238 (1975). Proximate causation has two elements, cause in fact and legal causation. City of Seattle v. Blume, 134 Wash.2d 243, 251, 947 P.2d 223 (1997). "Cause in fact refers to the `but for' consequences of an act, that is, the immediate connection between an act and an injury." Blume Wn.2d at 251-52. Legal causation is based on policy considerations determining how far the consequences of an act should extend. Id. Proximate cause is determined by the "but for" test. Griswold v. Kilpatrick, 107 Wash.App. 757, 760, 27 P.3d 246 (2001). The plaintiff must demonstrate that "but for" the attorney's negligence he would have obtained a better result. Sherry v. Diercks, 29 Wash.App. 433, 438, 628 P.2d 1336 (1981). Proximate cause is usually the province of the jury. Brust v. Newton, 70 Wash.App. 286, 291-93, 852 P.2d 1092 (1993). However, the court can determine proximate cause as a matter of law if "reasonable minds could not differ." Hertog v. City of Seattle, 138 Wash.2d 265, 275, 979 P.2d 400 (1999).

¶ 9 To complete a prima facie case for legal malpractice and survive summary judgment, Smith needs to show the deficiencies caused the harm. Smith needs to demonstrate that a better contract or full disclosure would have prevented the injury or improved his recovery. Smith points to several deficiencies in the construction contract to support his malpractice claim. The contract was a "cost plus" contract without a guaranteed price ceiling, there was no provision allowing for audits of the contractor's records, it did not require a personal guarantee from the company owner, it did not specify the luxury quality of workmanship desired, and the required insurance and contractor bonds were insufficient. However, he fails to demonstrate that "but for" these deficiencies in the contract he would have had a better result.

¶ 10 The only clear evidence of causation came from the declaration of Mr. Miles Stanislaw, the plaintiff's negligence and standard of care expert. After indicating specific deficiencies in the contract, he stated, "it is highly unlikely that Mr. Smith or any reasonabl[y] prudent person would have signed this construction agreement had the contract's numerous deficiencies and risks been adequately and accurately explained in writing." The trial court struck this sentence as testimony outside Mr. Stanislaw's disclosed area of expertise. Without this testimony tying the alleged deficiencies to the damages, nothing in the record establishes causation.

¶ 11 Smith states that he "believe[s] categorically and unequivocally that had Mr. Wolfendale advised [him] of any of the numerous problems, shortcomings and inadequacies in this contract [he] would never have signed it." Smith could not specifically identify an alternative that would have led to a...