Wastvedt v. Vaaler, 870344

• Decision Date: 18 October 1988
• Docket Number: No. 870344,870344
• Citation: 430 N.W.2d 561
• Parties: Gilman WASTVEDT, an individual; Osten H. Pladson, an individual; James N. Kent and Ethel B. Kent, husband and wife; Harley Nash, as Personal Representative of the Estate of H.M. Nash, deceased; Joseph Noff, as Personal Representative of the Estate of Emelia R. Nash, deceased; Harley Nash, an individual, and as Personal Representative of the Estate of Theodore Huus, deceased; Alpha Huus, an individual; and Lowell Brieland, as Personal Representative of the Estate of Theodore Huus, deceased, Plaintiffs and Appellants, v. Robert VAALER, an individual; and Vaaler, Gillig, Warcup, Woutat, Zimney & Foster, Chartered, a professional corporation, Defendants and Appellees. Civ.
• Court: North Dakota Supreme Court

Page 561

430 N.W.2d 561

Gilman WASTVEDT, an individual; Osten H. Pladson, an individual; James N. Kent and Ethel B. Kent, husband and wife; Harley Nash, as Personal Representative of the Estate of H.M. Nash, deceased; Joseph Noff, as Personal Representative of the Estate of Emelia R. Nash, deceased Harley Nash, an individual, and as Personal Representative of the Estate of Theodore Huus, deceased; Alpha Huus, an individual; and Lowell Brieland, as Personal Representative of the Estate of Theodore Huus, deceased, Plaintiffs and Appellants, v. Robert VAALER, an individual; and Vaaler, Gillig, Warcup Woutat, Zimney & Foster, Chartered, a professional corporation, Defendants and Appellees.

Civ. No. 870344.

Supreme Court of North Dakota.

Oct. 18, 1988.

Paul G. Neimann (argued) and Dave F. Senger (appearance), of Moss & Barnett, Minneapolis, Minn. and Mack, Moosbrugger, Ohlsen, Dvorak & Carter, Grand Forks, for plaintiffs and appellants.

Nilles, Hansen & Davies, Ltd., Fargo, for defendants and appellees; argued by J. Gerald Nilles. Appearance by Duane H. Ilvedson.

LEVINE, Justice.

The plaintiffs, Gilman Wastvedt, Osten H. Pladson, James N. Kent, Ethel B. Kent, H.M. (Herb) Nash, Emelia R. Nash, Theodore Huus, Alpha Huus, and Harley Nash, appeal from a judgment notwithstanding a jury verdict which set aside a $168,185.63 verdict in their legal malpractice action against the defendants, Robert Vaaler and Vaaler, Gillig, Warcup, Woutat, Zimney & Foster, Chartered, a professional corporation. We affirm.

The plaintiffs' legal malpractice claim centers on the January 8, 1982 sale of their majority ownership of the Farmers and Merchants National Bank of Hatton [Bank] to Omar Vein. At the time of the sale, Wastvedt, Pladson, James Kent, Harley Nash, Herb Nash, and Theodore Huus were on the Board of Directors and shareholders of the Bank. ¹ Wastvedt, Pladson, Kent, and Huus were "outside" directors who were not employed by the Bank and were retired farmers in the Hatton community. Herb Nash and Harley Nash were "inside directors" who were employed by the Bank and were involved in its day-to-day management.

In April 1980 the United States Comptroller of Currency issued a Bank Examination Report expressing concern with the ratio of the Bank's capital to its "substandard, doubtful, or loss" loans. The Report described numerous violations of 12 U.S.C. Sec. 84 ² regarding overline loans approved by the directors and warned of the potential personal liability of directors who had approved the overline loans. The Comptroller demanded that the Bank obtain new management and additional capital of $400,000. In response to the Report, the Bank directors hired Vaaler to represent the Bank in its dealings with the Comptroller.

During the next year, the Bank did not meet the Comptroller's demands, and on behalf of the outside directors, Wastvedt and Huus met with Vaaler and asked him to help them sell their shares of the Bank. Wastvedt testified that he asked Vaaler to bill them personally for that visit because it was of a personal nature. When Vaaler suggested that the stockholders might have to sell fifty-one percent ownership in the Bank in order to attract new management and an owner who would furnish capital to the Bank, the outside directors approached Herb and Emelia Nash who agreed to sell their shares. They also approached Harley Nash and he agreed to sell enough of his shares so that the directors and their wives, as a group, could provide a potential buyer with fifty-one percent of the shares, as suggested by Vaaler.

During the fall of 1981, the plaintiffs discussed the sale of stock with David Egge, a potential buyer. Another individual, Oliver Haugen, chairman of the board of the Buxton Bank, also expressed interest to Wastvedt in the possible purchase of plaintiffs' stock by the Buxton Bank. Further negotiations with these potential buyers did not materialize, and in November 1981, Vaaler suggested that one Omar Vein might be interested in purchasing control of the Bank. On November 27, 1981, Vein met with the plaintiffs to discuss the possible purchase of control of the Bank. On December 1, 1981, Vein again met with the plaintiffs and a proposal was executed wherein Vein agreed to purchase 2,150 shares of stock at $200 per share from the plaintiffs for a total price of $430,000. That proposal also included a provision for a reduction in purchase price based on the Bank's write-off of classified loans:

"The purchase price shall be subject to a reducing credit which shall be any sums which the bank may lose as the result of loans presently carried on the books of the Farmers and Merchants National Bank of Hatton which have been classified as substandard, doubtful or loss items on the Report of Examination of the bank as conducted by the Comptroller of the Currency, said Report of Examination being dated the 2nd day of June, 1981, reference to which is hereby had."

After the December 1, 1981 proposal was executed, the Comptroller's June 2, 1981 report became available. The report classified about $130,000 of the Bank's loans as "substandard, doubtful or loss" which, pursuant to the write-off clause in the proposal, resulted in a corresponding reduction in the purchase price of the stock. The plaintiffs and Vein then executed a Stock Purchase Agreement dated January 8, 1982, whereby Vein purchased 2,150 shares of stock from the plaintiffs for $300,000 or $139.52 per share. Pursuant to that Stock Purchase Agreement, Vein made a $75,000 downpayment, with the remaining $225,000 to be made in three equal installments. That Stock Purchase Agreement also provided, in part:

"If at any time during the period while this Agreement is being performed, and prior to the last payment date as provided above, the Bank shall suffer any losses from any loans or investments that are listed on any of the three categories in the report of examination referred to above, the amount of such loss may be deducted from the then upcoming installment of the purchase price to be paid by the Buyer to the Sellers (hereinafter referred to as 'Deductions'). The Deductions shall first be deducted from interest on each installment and the balance to reduction of principal. The amount guaranteed by the Sellers, and the maximum Deductions which may be credited against the purchase price pursuant to this Agreement shall be the sum of Two Hundred Twenty-five Thousand and no/100 Dollars ($225,000.00) plus interest thereon."

The plaintiffs did not receive the remaining $225,000 due under the Stock Purchase Agreement because subsequent Comptroller Reports wrote off an equivalent sum of substandard, doubtful, or loss loans. The plaintiffs thereafter commenced this legal malpractice action against the defendants, alleging that, in representing them in the stock transaction, Vaaler failed to disclose a conflict of interest arising from an attorney-client relationship between him and his longtime friend, Vein; that Vaaler was negligent in drafting the Stock Purchase Agreement and in advising the plaintiffs about the transaction. The defendants denied that an attorney-client relationship existed between Vaaler and the plaintiffs and alleged that Vaaler was employed solely to represent the Bank in connection with the Comptroller's demands. The defendants also denied that Vaaler's conduct was the proximate cause of any damage to the plaintiffs.

The jury returned a special verdict, finding that there was an implied attorney-client relationship between each plaintiff and Vaaler; that, with respect to each plaintiff, Vaaler committed legal malpractice consisting of a conflict of interest, negligent advice, and negligent drafting of the Stock Purchase Agreement; that Vaaler's legal malpractice caused damage to each of the plaintiffs; that the plaintiffs were each thirty-five percent contributorily negligent; and that the plaintiffs, as a group, suffered total compensatory damages in the amount of $224,997.50. After reducing the damages to reflect the plaintiffs' contributory negligence, judgment was entered for $168,185.63 including interest and excluding costs and disbursements.

Vaaler and his law firm then moved for judgment notwithstanding the verdict. The trial court granted the motion, holding that the plaintiffs had failed to establish by expert testimony the standard of care and departure from that standard for negligent drafting of the Stock Purchase Agreement and for negligent advice; that there was insufficient evidence to establish an implied attorney-client relationship between Vaaler and the three Nashes; and that although there was sufficient evidence to establish a conflict of interest, there was no evidence that the conflict proximately caused damage to the plaintiffs. The plaintiffs have appealed.

In Okken v. Okken, 325 N.W.2d 264, 267 (N.D.1982), we outlined the appropriate standard for analyzing a motion for judgment notwithstanding the verdict:

"In determining if the evidence is sufficient to create an issue of fact, and hence in determining if judgment n.o.v. should be granted, the trial court must employ a rigorous standard with a view toward preserving verdicts. Riebe v. Riebe, 252 N.W.2d 175 (N.D.1977). The test is whether or not the evidence, when viewed in the light most favorable to the party against whom the motion is made, leads to but one conclusion as to the verdict about which there can be no reasonable difference of opinion. Staiger v. Gaarder, 258 N.W.2d 641 (N.D.1977). In employing this standard, the trial judge is not free to consider the weight of the evidence or to judge the credibility of witnesses; on the contrary, he is required to accept the truth of the evidence presented by the party opposing the motion and the truth of all reasonable inferences from that evidence which support the jury verdict. Riebe, supra, 252 N.W.2d at 177; 9 Wright & Miller, Federal Practice and Procedure, Civil 2524. The trial court must...