VersusLaw, Inc. v. Stoel Rives, LLP, 53394-1-I.

• Citation: 127 Wash. App. 309,127 Wn. App. 309,111 P.3d 866
• Decision Date: 04 April 2005
• Docket Number: No. 53394-1-I.,53394-1-I.
• Court: Court of Appeals of Washington
• Parties: VERSUSLAW, INC., a Washington corporation, Appellant, v. STOEL RIVES, LLP, an Oregon Limited Liability Partnership; Deborah Anne Elvins and John Doe Elvins, her husband, and the marital community comprised thereof, Respondents.

111 P.3d 866

127 Wn. App. 309

127 Wash. App. 309

VERSUSLAW, INC., a Washington corporation, Appellant, v. STOEL RIVES, LLP, an Oregon Limited Liability Partnership; Deborah Anne Elvins and John Doe Elvins, her husband, and the marital community comprised thereof, Respondents.

No. 53394-1-I.

Court of Appeals of Washington, Division 1.

April 4, 2005.

Publication Ordered May 5, 2005.

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

William Francis Cronin, Joshua J. Preece, Seattle, WA, for Respondents.

SCHINDLER, J.

¶ 1 VersusLaw, Inc. (VersusLaw) appeals the trial court's order granting summary judgment to Stoel Rives, LLP (Stoel Rives) in this attorney malpractice action. Because we conclude there are material issues of fact, we reverse the trial court's decision to grant summary judgment, vacate the final judgment entered on October 3, 2003, and remand for further proceedings consistent with this opinion.

FACTS

¶ 2 Matthew Bender and Company (Matthew Bender) was a national publisher of secondary legal research materials. VersusLaw is a Washington company that published an electronic primary research database of case law and statutes. Joseph W. Acton is the president and chief executive officer of VersusLaw. Matthew Bender was interested in obtaining a source for primary case law database access so that it could provide links from its online publications to case law. In 1997, Matthew Bender contacted VersusLaw and negotiated an agreement to obtain access to VersusLaw's electronic case law database.

¶ 3 Matthew Bender agreed to pay $600,000 a year in royalties and invest $7.5 million in VersusLaw in exchange for the right to provide access to VersusLaw's case law database through links in Matthew Bender's internet publications. Stoel Rives represented VersusLaw in the negotiations with Matthew Bender and drafted an agreement, which included the Series B Preferred Stock Purchase Agreement (Stock Agreement), the Loan and Repayment Agreement (Loan Agreement), and the Irrevocable License Agreement (License Agreement).

¶ 4 On October 21, 1997, Matthew Bender and VersusLaw executed the three agreements. In the Stock Agreement, Matthew Bender agreed to invest $3 million for VersusLaw stock. In the Loan Agreement, Matthew Bender loaned VersusLaw $4.5 million. VersusLaw promised to repay the loan by October 20, 2007, and make biannual interest-only payments at eight percent on the outstanding principal in December and June of each year. VersusLaw also executed a promissory note, security agreement and UCC-1 Financing Statement for the loan.

¶ 5 The License Agreement allowed Matthew Bender to use and allow access to VersusLaw's case law database. The agreement required VersusLaw to deliver its licensed database materials to Matthew Bender no later than September 30, 1998. Upon delivery, Matthew Bender agreed to pay VersusLaw a monthly licensing fee of up to $50,000 for the first 60 months, followed by a variable royalty fee.¹ Matthew Bender could reject VersusLaw's database only if it notified VersusLaw of a substantial and material nonconformity.² The License Agreement also contains a binding arbitration provision and an express two-year time limitation for legal claims.³

¶ 6 Matthew Bender and VersusLaw treated the three agreements as part of one transaction. VersusLaw expected to use the monthly royalty revenue to meet its obligation to pay interest on the loan. Matthew Bender planned to provide access to the VersusLaw database in early 1998 and was anxious to begin work on conversion programs to integrate VersusLaw's database into links in its online publications.

¶ 7 In November 1997, at Matthew Bender's request, VersusLaw delivered the case law database for three states so Matthew Bender could determine whether the data was compatible and prepare conversion programs. With this delivery, Matthew Bender was able to successfully integrate VersusLaw's data in links from Matthew Bender's publications.

¶ 8 In November or early December, Times Mirror Publishing, the parent company of Matthew Bender, announced it was going to concentrate on its newspaper publications and consider selling Matthew Bender.

¶ 9 On December 1, 1997, VersusLaw made an interest payment to Matthew Bender under the terms of the Loan Agreement. In December 1997, Acton attempted to deliver VersusLaw's case law database to Matthew Bender but Matthew Bender told Acton not to send the database.

¶ 10 In spring of 1998, VersusLaw learned that LEXIS/NEXIS (Lexis), a competitor case law database publisher, was the likely buyer of Matthew Bender. Sometime in spring 1998, VersusLaw again attempted to deliver its case law database to Matthew Bender. The Vice President of Electronic Publishing for Matthew Bender told Acton not to send the database. She testified that Matthew Bender instructed her to tell Acton not to send any data.

¶ 11 Sometime after Matthew Bender refused to accept delivery of the database in spring 1998, Stoel Rives advised VersusLaw to not pay the June interest payment due under the Loan Agreement and to obtain a waiver from Matthew Bender. Matthew Bender agreed VersusLaw did not have to pay the June interest payment.

¶ 12 In August 1998, Matthew Bender was sold to Lexis and Lexis acquired Matthew Bender's ownership interest in VersusLaw. At some point after the acquisition, Lexis decided it was not interested in VersusLaw's database. ¶ 13 On July 21, 2000, Matthew Bender filed a complaint against VersusLaw and a demand for arbitration based solely on the Loan Agreement. Matthew Bender alleged it had fully performed by making the $4.5 million loan and VersusLaw was in default for failing to make interest payments. Matthew Bender claimed it was entitled to payment of the loan principal and past due and accrued interest for a total of $5.4 million. Matthew Bender also sought to enforce the security interest and foreclose on VersusLaw's assets. Matthew Bender requested an order requiring immediate repayment and foreclosure of VersusLaw's interest in its assets.

¶ 14 In its arbitration complaint, Matthew Bender took the position that the rights and obligations of the Loan Agreement and License Agreement were unrelated, separate transactions because there was no integration clause in the Loan Agreement and performance by Matthew Bender under the License Agreement was not a condition precedent to VersusLaw's obligation under the Loan Agreement. In the event VersusLaw tried to assert claims under the License Agreement, Matthew Bender alleged those claims were barred by the two-year time limitation provision.⁴ Matthew Bender requested a declaratory judgment order barring VersusLaw from raising Matthew Bender's unrelated breach of the License Agreement.

¶ 15 On August 11, 2000, Stoel Rives on behalf of VersusLaw filed a notice of breach of the License Agreement and a counterclaim. In the notice, VersusLaw claimed Matthew Bender was in breach for failing to accept delivery of the VersusLaw database and to pay royalties as required by the License Agreement.

¶ 16 On December 27, 2000, Stoel Rives attorney Deborah Elvins told Acton that she was going to disclose to Stoel Rives' malpractice insurance carrier, ALAS, that VersusLaw's claim for royalties may have been compromised by Stoel Rives' failure to advise VersusLaw to timely file a claim as required by the License Agreement. On January 11, 2001, Elvins wrote to Acton advising him that she was going to disclose VersusLaw's potential malpractice claim to ALAS and requesting written consent for Stoel Rives to continue representing VersusLaw.

As we discussed, it is possible that your claim against Matthew Bender under the Irrevocable License Agreement may be barred by the contractual two year statute of limitations in the Irrevocable License Agreement, and that VersusLaw may have a claim against me for failing to advise you to commence an arbitration against Matthew Bender on a timely basis. If [sic] is a factual issue whether your claim arose more [than] two years prior to July 21, 2000, the date of Matthew Bender's demand for arbitration, but it is possible that the arbitration panel could so rule. The purpose of our conversation on August 22 and this letter is not to ask you to waive any claim that VersusLaw may have against me, but to confirm in writing the consent that you gave on August 22 to the continued representation of VersusLaw by Stoel Rives in the arbitration.

...

Please confirm the consent that you provided in August to Stoel Rives continuing representation of VersusLaw by signing the enclosed copy of this letter and returning it to me for the file.⁵

On January 23, Stoel Rives withdrew and Danielson, Harrigan & Tollefson appeared to represent VersusLaw in the arbitration proceedings.

¶ 17 In November 2001, Matthew Bender and VersusLaw agreed to settle their claims in the pending arbitration. As part of the settlement agreement, VersusLaw agreed to pay $1 million of the original loan principal immediately and to accelerate the maturity date for the loan from 2007 to 2004 with monthly rather than biannual interest payments. Matthew Bender agreed to a $1 million reduction of the principal amount due. The parties agreed to terminate the License Agreement.

¶ 18 In June 2002, VersusLaw sued Stoel Rives for legal malpractice. VersusLaw claimed Stoel Rives' attorneys were negligent and breached the standard of care in their representation of VersusLaw. VersusLaw alleged Stoel Rives negligently drafted the agreements with Matthew Bender and failed to advise VersusLaw to timely assert its claim for unpaid royalties under the License Agreement. VersusLaw claimed damages resulting from Stoel Rives' negligence including royalty payments, the additional costs caused by the settlement agreement with Matthew Bender, and attorney fees.

¶ 19 After the deposition of Elvins, VersusLaw requested production of a November 2, 2000 memorandum and a January 22, 2001...