Swanson v. Sheppard, 890025

• Decision Date: 28 August 1989
• Docket Number: No. 890025,890025
• Citation: 445 N.W.2d 654
• Parties: , 55 Ed. Law Rep. 1145 Steven E. SWANSON, North Dakota State University, assignee, Plaintiff, Appellee and Cross-Appellant, v. Alan J. SHEPPARD, Defendant, Appellant and Cross-Appellee. Civ.
• Court: North Dakota Supreme Court

Page 654

445 N.W.2d 654

58 USLW 2187, 55 Ed. Law Rep. 1145

Steven E. SWANSON, North Dakota State University, assignee Plaintiff, Appellee and Cross-Appellant, v. Alan J. SHEPPARD, Defendant, Appellant and Cross-Appellee.

Civ. No. 890025.

Supreme Court of North Dakota.

Aug. 28, 1989.

Clifton G. Rodenburg, of Gackle, Johnson, Rodenburg & Trader, Fargo, for plaintiff, appellee, and cross-appellant North Dakota State University, assignee.

Jon R. Brakke, of Vogel, Brantner, Kelly, Knutson, Weir & Bye, Ltd., Fargo, for defendant, appellant, and cross-appellee. Appearance by Alan J. Sheppard.

VANDE WALLE, Justice.

Alan J. Sheppard appealed from a county court judgment awarding damages to Steven E. Swanson for Sheppard's negligence in representing Swanson in a bankruptcy matter. We reverse and remand for further proceedings.

During November or December 1986 Swanson contacted Sheppard to discuss the possibility of filing a bankruptcy petition on Swanson's behalf. Sheppard was ultimately retained by Swanson who represented him in filing a Chapter 7 bankruptcy.

Between 1983 and 1985 Swanson completed approximately one-and-one-half years of college. During that time he secured student loans of approximately $7,000. The loans first became payable in 1986 and constituted about 47 percent of Swanson's total outstanding debt when he contacted Sheppard about the bankruptcy filing. This case centers around Swanson's student-loan obligations which were not discharged in his Chapter 7 bankruptcy.

It is undisputed that student-loan obligations are treated differently under Chapter 7 and Chapter 13 bankruptcies. Pursuant to 11 U.S.C. § 523(a)(8), an educational (student) loan cannot be discharged in a Chapter 7 bankruptcy proceeding unless the loan "first became due before five years ... before the date of the filing of the petition" or unless "excepting such debt from discharge ... will impose an undue hardship on the debtor and debtor's dependents." These restrictions on discharging a student loan in a Chapter 7 bankruptcy are not applicable to a Chapter 13 bankruptcy, where the bankruptcy court approves and the debtor completes a plan to pay a portion of his total debt over a period of time, with the balance of the bankrupt's debt, including his student loans, being discharged. 11 U.S.C. § 1328(a).

Swanson sued Sheppard for legal malpractice, alleging that Sheppard was negligent because he did not explain to Swanson that student-loan obligations are treated differently under Chapter 7 and Chapter 13 bankruptcy filings and that Sheppard was negligent in not filing a Chapter 13 petition on Swanson's behalf with a plan to have the student-loan obligations discharged. The trial court agreed with Swanson's assertion that Sheppard was negligent in failing to properly inform his client regarding the treatment of student-loan obligations under the bankruptcy code. The trial court also found that Sheppard was negligent for filing on Swanson's behalf a Chapter 7 rather than a Chapter 13 bankruptcy.

In determining damages, the trial court concluded that Swanson had total student-loan debts, including creditor collection costs and attorney fees, of $8,397.29, which were not discharged under the Chapter 7 bankruptcy filing. The trial court further concluded that the student loans would have been discharged if Swanson had filed for bankruptcy under Chapter 13, less payments made by Swanson on his debts for three years, in an amount equal to his disposable income of $35 per month, resulting in total debt payment over that time of $1,260. Subtracting those payments from the total student-loan debt, the trial court concluded that as a result of Sheppard's negligent representation Swanson suffered damage of $7,137.29 together with interest, costs, and disbursements, for a total damages award of $7,273.74. The trial court entered judgment accordingly, from which Sheppard filed this appeal.

Sheppard has raised the following issues on appeal:

(1) Whether Swanson failed to establish the standard of care or duty and a breach of that duty by Sheppard; and

(2) Whether the trial court erred in its determination of damage proximately caused by Sheppard's negligent representation of Swanson.

Swanson filed a cross-appeal raising the following issue:

(1) Whether the trial court erred in refusing to impose sanctions against Sheppard for pleading a counterclaim for improper purposes.

Sheppard asserts that Swanson failed to establish the nature of the duty owed by Sheppard in representing Swanson or that Sheppard breached his duty. The standard of care to which an attorney is held in the performance of his professional services is that degree of skill, care, diligence, and knowledge commonly possessed and exercised by a reasonable, careful, and prudent lawyer in the practice of law in this State. Martinson Bros. v. Hjellum, 359 N.W.2d 865 (N.D.1985). Generally, expert testimony is necessary to establish the nature of the duty owed by the professional in that particular case and to establish whether the professional's conduct constituted a breach of duty. Wastvedt v. Vaaler, 430 N.W.2d 561 (N.D.1988). However, expert testimony to establish duty and breach of duty is not necessary when the professional's misconduct is so obvious that the trier of fact can adequately evaluate the professional's conduct and comprehend the breach of duty without the assistance of expert testimony. Wastvedt, supra, at 565. We conclude that this is such a case.

It is undisputed that student-loan obligations are treated differently under Chapter 7 and Chapter 13 bankruptcy proceedings. The trial court found that attorney Sheppard did not explain those differences to Swanson. The court also found that Sheppard initially told Swanson that student loans were not dischargeable and then, after amending the Chapter 7 filing to include Swanson's student-loan obligations, Sheppard informed Swanson that if his creditors made no objection the student loans would be discharged under the Chapter 7 proceedings. Under these circumstances, we do not believe that expert testimony was required to demonstrate that Sheppard had a duty to correctly advise Swanson about the basic principles of bankruptcy law regarding treatment of his student-loan obligations or that Sheppard breached that duty. See Feil v. Wishek, 193 N.W.2d 218 (N.D.1971).

Sheppard failed to explain to Swanson how his student loans would be differently treated under Chapter 7 and Chapter 13 bankruptcy filings, and the information he did give Swanson regarding student-loan discharges in bankruptcy was clearly wrong. The trial court found that this conduct by Sheppard constituted negligent representation, and, upon reviewing the record, we conclude that the trial court's finding is not clearly erroneous.

Sheppard also asserts on appeal that the trial court erred in its determination of damage proximately caused by Sheppard's negligent conduct. The trial court awarded Swanson damages equivalent to the student-loan debt that could have been discharged under Chapter 13, but was not discharged in the Chapter 7 filing.

An attorney is liable to his client for damage resulting from a breach of professional duty. Martinson Bros., supra, at 872. The client, as the plaintiff in a malpractice action against his attorney, must establish as an element of his cause of action the damage to the client proximately caused by the breach of duty. Wastvedt, supra, at 564-565. Where, for instance, it is alleged that an attorney negligently failed to perform some act on behalf of the client, the plaintiff must both allege and prove that if the attorney had performed the act it would have resulted beneficially to the client. Feldesman v. McGovern, 44 Cal.App.2d 566, 112 P.2d 645 (Cal.Dist.Ct.App.1941). In all actions where a plaintiff is...