Williams v. Preman

• Decision Date: 14 November 1995
• Docket Number: No. WD,WD
• Parties: Jarvis E. WILLIAMS, D.V.M., Appellant, v. Vance C. PREMAN and Vance C. Preman, a professional corporation, Respondent. 50331.
• Court: Missouri Court of Appeals

Page 288

911 S.W.2d 288

Jarvis E. WILLIAMS, D.V.M., Appellant, v. Vance C. PREMAN and Vance C. Preman, a professional

corporation, Respondent.

No. WD 50331.

Missouri Court of Appeals,

Western District.

Nov. 14, 1995.

Respondent's Motion for Dismissal Denied

Dec. 26, 1995.

Modified on Court's Own Motion

Dec. 26, 1995.

Gregg Lombardi, Kansas City, for appellant.

David R. Buchanan, John S. Rollins, Kansas City, for respondent.

Before SPINDEN, P.J., and BRECKENRIDGE and SMART, JJ.

SMART, Judge.

The facts of this legal malpractice case defy quick description. The case involves, inter alia, issues of proximate cause related to the damages sustained by a party in litigation when that party, after allegedly wrongful conduct by that party's attorney, voluntarily settles the matter in litigation and then attempts to pass the cost of the settlement along to the defendant attorney.

Jarvis Williams, a veterinarian, engaged Vance Preman, an attorney, to represent him in a bankruptcy. In pursuit of his duties, Mr. Preman prepared certain documents, including schedules of debts and assets, to be filed in United States Bankruptcy Court. The documents prepared showed debts of over $860,000 and assets of $9,500. $7,500 was listed as the value of equipment and supplies used in the veterinary practice of Dr. Williams. The forms listed no bank accounts, no inventory, and no accounts receivable. The form listed three vehicles, having a total value of $1,000, and household goods having a total value of $1,000. In another location, the forms indicated that accounts receivable had been assigned to a bank as collateral. At the 341 meeting of creditors, Dr. Williams disclosed that his veterinary business did have various assets, although the assets were encumbered by the security interest of a bank. Dr. Williams acknowledged that he had $7,291 in his business bank account at Citizen's-Jackson County State Bank as of April 30, 1991, the date of filing his voluntary petition. Dr. Williams also disclosed that, of the three vehicles listed as having an aggregate value of $1,000, one of the three was sold subsequent to the filing for $1,600. Dr. Williams also stated that he cashed an IRA and a small cash value life insurance policy ($595) near the time of the filing and paid cash for a vehicle. These items were not shown in any documents.

After the 341 meeting of creditors, one of the creditors, Dr. Wayne Bradley, filed an objection to discharge in an attempt to block the discharge of Dr. Williams under 11 U.S.C. § 727 on the ground that Dr. Williams was guilty of intentional concealment of assets. Mr. Preman prepared an answer to Bradley's complaint, admitting that certain items were not disclosed, but asserting that the items in question had no value, or were "collateralized to a secured creditor, Citizen's-Jackson County State Bank," and that, in addition, "amounts in any bank accounts had been seized by the Internal Revenue Service." He contended that the veterinary practice had no value and that the inventory of pharmaceuticals had no value and were subject to the security interest of Citizen's-Jackson County State Bank. Subsequent to the filing of the answer to the objection to discharge by Dr. Williams, and subsequent to additional discovery which took place pursuant to the adversary litigation framed by Dr. Bradley's complaint, Dr. Williams engaged a new attorney, S.W. Longan, III. Mr. Longan filed a motion for summary judgment on Dr. Bradley's objection to discharge. In that motion, Dr. Williams contended that he had fully disclosed his property and assets to Mr. Preman, and that the forms and schedules had been completed by Mr. Preman, upon whom Dr. Williams had relied. Dr. Williams claimed that the discharge should not be denied him because he was simply relying upon Mr. Preman to properly complete all documents. Dr. Williams also contended that the omissions in question were not material.

Dr. Bradley filed his response to Dr. Williams' motion for summary judgment. Included among the affidavits filed by Dr. Bradley to counter Dr. Williams' motion was an affidavit executed by Mr. Preman, Dr. Williams' former attorney. Dr. Williams and Dr. Bradley each had requested a supporting affidavit from Mr. Preman, but Mr. Preman declined to provide one to Dr. Williams and instead provided one to Dr. Bradley. The affidavit of Mr. Preman stated that he advised Dr. Williams that all assets needed to be disclosed, regardless of whether they were subject to an encumbrance or were claimed to be exempt. He said that any assets not disclosed on the schedules would not have been disclosed to him. The affidavit denied that the non-disclosure of assets was based upon Mr. Preman's advice:

Dr. Williams' assertion that he failed to list all of the foregoing assets, property, income and/or transfers based upon my advice is untrue. I took care in preparing Dr. Williams' bankruptcy schedules. I reviewed the schedules with Dr. Williams very carefully and explained to him the importance of fully disclosing all property, assets, income and transfers. Dr. Williams signed the voluntary petition and declared it to be true and correct. Dr. Williams' statement that any omissions and misstatements contained in the bankruptcy schedules were based upon my advice, is simply baseless.

The motion of Dr. Williams for summary judgment based upon "advice of counsel" was denied. Thereafter, Dr. Williams agreed to settle with Dr. Bradley by excluding from the discharge the debts owed to Dr. Bradley, which exceeded $66,000. The unsecured debts owed to the other creditors were all discharged.

Thereafter, Dr. Williams brought an action against Mr. Preman and against Mr. Preman's professional corporation (collectively referred to as Mr. Preman). Dr. Williams asserted that Mr. Preman was guilty of legal malpractice in that the bankruptcy schedules did not list all of plaintiff's assets. Plaintiff Williams asserted that Mr. Preman advised him that the "numerous encumbered assets and assets which [Mr. Preman] deemed to be of little value" did not need to be listed as assets in the bankruptcy, whereas, in fact, under the law they were required to be listed. Plaintiff further contended that Mr. Preman failed subsequently to amend the schedules to correct deficiencies in the list of assets. Also included in Dr. Williams' petition was a claim for breach of fiduciary duty, in which plaintiff asserted that Mr. Preman breached his fiduciary duty of loyalty to Dr. Williams by assisting Dr. Bradley's prosecution of the adversarial action against Dr. Williams. Dr. Williams claimed that Preman wrongfully assisted Bradley by providing an affidavit which "contained numerous misstatements of fact, and that Mr. Preman knew the statements were false at the time he executed the affidavit." Williams alleged that, due to the provision of Preman's affidavit, his motion for summary judgment in the bankruptcy court was denied, causing Williams to incur damages, including additional attorneys fees and expenses. Defendant Preman denied liability.

At trial, at the close of the evidence, the trial court granted Defendant Preman a directed verdict on the claim of breach of fiduciary duty. The court also granted a partial directed verdict as to the legal malpractice claim, ruling that plaintiff was not entitled to submit as part of his damages the amount of the settlement involving Dr. Bradley ($66,972.00). The claim of legal malpractice was submitted to the jury as to the attorneys fees ($35,383.54) incurred in defending the objection to discharge. After deliberation, the jury returned a verdict for Defendant Preman on the legal malpractice claim. Plaintiff appeals.

The "Case Within a Case"

Plaintiff first contends on appeal that the trial court erred in denying him the right to submit to the jury his claim of breach of fiduciary duty. Williams claims that there was substantial evidence to support each element of the claim. The record shows that the trial court concluded that Williams had failed to show that any damages were caused by any action of Mr. Preman because Dr. Williams had settled the underlying claim brought by Dr. Bradley. The trial court noted that, because the alleged damages are based on the resolution of the underlying action in the bankruptcy court, the plaintiff must prove a "case within a case." The court stated that Plaintiff Williams must prove that the actions of Mr. Preman "would have caused plaintiff to lose the objection to discharge and thereby cause plaintiff to lose the discharge itself." The trial court, considering the evidence of the case within a case, found that Williams would have prevailed over the objection to discharge if it had been tried rather than settled. The court found that there was no evidence presented to the court which tended to prove that plaintiff executed the schedules with fraudulent intent and that plaintiff's bankruptcy expert "specifically testified that he believed plaintiff would have prevailed in the objection to discharge if it had been tried rather than settled." The court also found that "any deficiencies in the schedules were immaterial, and the objecting creditor was on notice as to the existence of the additional assets anyway." The court ruled, therefore, that any damages relating to the settlement of the objection to discharge "have no causal connection to any acts or omissions of defendant." The court entered judgment for defendant on the claim of breach of fiduciary duty.

The Fact-Finder in the Underlying Case

An implicit issue in this appeal is whether the trial court was correct in determining that the resolution of the "case within a case" was for the court and not for the jury. This issue arose in Calhoun v. Lang, 694 S.W.2d 740 (Mo.App.1985). In an underlying employment discrimination case, the attorneys representing plaintiff failed to respond to discovery orders, and the court dismissed the case with prejudice. P...