No. 49164-4-I.The Court of Appeals of Washington, Division One.
Filed: September 16, 2002. DO NOT CITE. SEE RAP 10.4(h). UNPUBLISHED OPINION.
Appeal from Superior Court of King County, No. 99-2-05457-1, Hon. Larry Jordan, July 27, 2001, Judgment or order under review.
Counsel for Appellant(s), Philip Mahoney, Attorney At Law, 720 3rd Ave Ste 1903, Seattle, WA 98104-1825.
Counsel for Respondent(s), John F. Jenkel, 900 4th Ave Ste 1700, Seattle, WA 98164.
Roy A. Umlauf, Forsberg Umlauf, 900 4th Ave Ste 1700, Seattle, WA 98164.
John F. Jenkel, 900 4th Ave Ste 1700, Seattle, WA 98164.
Roy A. Umlauf, Forsberg Umlauf, 900 4th Ave Ste 1700, Seattle, WA 98164.
John F. Jenkel, 900 4th Ave Ste 1700, Seattle, WA 98164.
Roy A. Umlauf, Forsberg Umlauf, 900 4th Ave Ste 1700, Seattle, WA 98164.
William R. Hickman, Reed McClure, 601 Union St. Ste 4901, Seattle, WA 98101-3920.
H. JOSEPH COLEMAN, J.
Richard Taylor and Mary Moran were involved in a meretricious relationship from 1987 to 1995, when Moran sued Taylor for an allocation of assets. Taylor hired Goddard Wetherall to represent him and Reed McClure to represent his three corporations also named in the suit. In 1996, the parties signed a settlement agreement and the trial court dismissed the case. In 1999, following litigation regarding enforcement of the agreement, Taylor and his three corporations sued Goddard
Wetherall and Reed McClure for legal malpractice, alleging that the attorneys advised him to enter a disadvantageous settlement agreement, were negligent in drafting the agreement, and failed to properly advise him of the tax consequences of the agreement. Because the judgmental immunity doctrine bars his claims regarding his attorneys’ advice and the record reflects that his own actions were the proximate cause of any damages he sustained, we affirm the trial court’s decision to grant summary judgment.
FACTS
Richard Taylor is the sole shareholder in three fruit exporting corporations known as Dendros, Inc., United Trading Company, and United Shipping Company. Dendros employed Mary Moran in various capacities from 1981 to 1995. Taylor and Moran began living together in 1987. Although he had limited assets in 1987, Taylor and his corporations were worth approximately $7 million by 1995.
On August 3, 1995, Moran sued Taylor for an allocation of assets based on their meretricious relationship. On August 9, 1995, she amended her petition, adding United Trading, United Shipping, and Dendros as respondents. On August 15, 1995, R. Hays Goddard of Goddard Wetherall appeared for Taylor. On September 9, 1995, C. Dean Little of Reed McClure appeared for the three companies. On September 21, Goddard filed a notice of association with Malcolm Edwards. On October 2, 1995, Little withdrew and Scott Wakefield of Todd Wakefield appeared as substitute counsel for the three companies.
Goddard, who had represented Taylor in the dissolution of a previous marriage, and Edwards, who had recently argued Connell v. Francisco, 127 Wn.2d 339, 898 P.2d 831 (1995), a landmark case involving property division following a meretricious relationship, advised Taylor to settle the lawsuit if Moran would agree to anything less than $1.2 million. After speaking directly with Moran, Taylor agreed to pay her $750,000, of which $600,000 would be tax free to her, to settle the case.
On February 13, 1996, at the offices of Reed McClure, Taylor met with Goddard, Little, Wakefield, tax attorney Roger Stouder[1] of Reed McClure, and accountant Lincoln Miller of Moss Adams, to discuss the structure and tax consequences of the settlement. Stouder prepared a memorandum detailing the options discussed, outlining the contemplated structure of the agreement, and concluding that they “could not find a way to make such a payment tax free to Taylor.” Despite his attorneys’ concerns, Taylor believed that the settlement would be tax free to him and decided to sign the agreement and “worry about [Moran’s] taxes later[.]” On March 5, 1996, Taylor signed the agreement providing that Dendros would pay Moran $150,000 in deferred compensation, that United Shipping would make a distribution of $600,000 to Moran, indemnifying her for any taxes, and that Moran would allow United Shipping and Taylor to control any tax audit or proceedings resulting from the distribution. On April 16, 1996, the trial court approved the settlement agreement and dismissed the case.
When Taylor began selling off real estate in 1997, Moran believed that he was planning to leave the country, and she returned to court to enforce the terms of the agreement regarding the taxes on the $600,000. A commissioner ordered that proceeds from Taylor’s real estate sale be placed in a trust account to secure payment of Moran’s taxes. On April 15, 1997, Taylor directed Moran to treat the $600,000 as ordinary income on her tax return and authorized her to withdraw funds from the trust account to pay her taxes. Again in 1998, Moran moved for enforcement of the agreement regarding taxes. A commissioner ordered Taylor to make further payments to Moran so she could pay taxes on the amounts Taylor gave her to pay taxes in 1997, the so-called “tax on tax.”
On July 20, 1998, Judge Larry Jordan denied Taylor’s motion for revision and entered findings and conclusions, including a determination that Taylor was the alter-ego of his various corporations.[2] This court affirmed the trial court’s interpretation of the agreement in an unpublished decision.[3]
On March 3, 1999, Taylor and his corporations filed a legal malpractice claim against Goddard, Goddard Wetherall, Little, Reed McClure, and the Estate of Roger Stouder. Referring to all the defendants collectively, Taylor alleged that they failed to exercise reasonable care in advising him to settle, in drafting the settlement agreement, and in protecting his assets, causing him to enter a disadvantageous agreement resulting in additional litigation and expense. Goddard[4] counterclaimed for unpaid legal fees of less than $10,000, and Reed McClure[5] counterclaimed for unpaid fees of $9,679.48. Goddard moved for summary judgment, arguing that Taylor failed to establish any error or omission by Goddard constituting a breach of an applicable standard of care, that Taylor could not demonstrate that he would have achieved a better result but for Goddard’s advice, and that Taylor did not rely on Goddard for advice on any tax matter. Reed McClure also moved for summary judgment, arguing that (1) there had been no breach of duty, (2) Reed McClure did not advise Taylor on the reasonableness of the settlement, (3) plaintiffs had not shown how they would have achieved a better result but for an act or omission on the part of Reed McClure, (4) Reed McClure accurately advised Taylor of the potential tax consequences of the settlement, and (5) Taylor’s actions alone caused the tax liability that he incurred.
In opposition to the summary judgment motions, Taylor relied on declarations of Donna L. Johnston and F. Michael Kovack as experts to establish the standard of care. Without identifying specific facts by reference to the record to demonstrate a genuine issue for trial, Taylor argued that the division of property following meretricious relationships is governed by well-settled law that the defendant attorneys failed to properly analyze and apply. He contended that Moran would have been unsuccessful in her petition for allocation of assets because his corporations were his separate property and Moran contributed nothing but her compensated work to the corporations. As a result, the defendants’ failure to so advise him and to conduct discovery was malpractice. As to Reed McClure, Taylor asserted that “the declarations of Mr. Kovach obviously show disputed issues of material facts and therefore summary judgment cannot issue.”
On October 13, 2000, Judge Jordan granted summary judgment to Goddard on all claims. At a hearing on October 27, 2000, Judge Jordan identified five claims of error regarding the tax consequence of the settlement alleged in the Kovach declarations and granted summary judgment on all but one claim. In particular, Judge Jordan determined that a genuine issue of material fact existed as to whether Taylor had to pay more under the settlement agreement because he was not advised of the “tax on tax” issue. On November 14, 2000, following Reed McClure’s motion to reconsider, Judge Jordan granted summary judgment on that claim as well.
On appeal, Taylor claims that Goddard committed malpractice by advising him to settle the meretricious relationship case, by sending him to negotiate directly with Moran, and by failing to conduct discovery. Taylor claims that Reed McClure committed malpractice by (1) failing to inform him of the potential for “tax on tax” for the $600,000 distribution to Moran, (2) mischaracterizing the payments as back wages from Dendros, (3) advising him to use funds from United Shipping Company, (4) failing to advise him of alternative tax reporting characterizations, and (5) failing to draft the settlement agreement to require Moran to file a return in conformity with his understanding of the agreement.[6]
ANALYSIS
We review a summary judgment order de novo, performing the same inquiry as the trial court. Kruse v. Hemp, 121 Wn.2d 715, 853 P.2d 1373 (1993). Summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Kruse, 121 Wn.2d at 722; CR 56(c).
A plaintiff in a legal malpractice claim must prove that (1) there was an attorney-client relationship that gave rise to a duty of care, (2) the attorney breached that duty by an act or omission, (3) the breach damaged the client, and (4) the breach was the proximate cause of the client’s damages. Hizey v. Carpenter, 119 Wn.2d 251, 260-61, 830 P.2d 646 (1992). Claims of professional negligence usually involve mixed questions of law and fact. Halvorsen v. Ferguson, 46 Wn. App. 708, 713, 735 P.2d 675
(1987). A determination of whether an attorney erred regarding a legal matter is a question of law for the judge. Halvorsen, 46 Wn. App. at 713. Similarly, when determining proximate cause requires legal analysis, the judge is in a much better position than a jury to make that determination. Halvorsen, 46 Wn. App. at, 713; Daugert v. Pappas, 104 Wn.2d 254, 258-59, 704 P.2d 600 (1985).
Goddard Defendants
Taylor contends that it was “obvious malpractice” for Goddard to recommend a settlement because Moran had no legitimate claim to his separate property and would not have recovered at trial. Citing Connell v. Francisco, 127 Wn.2d 339, 351, 898 P.2d 831 (1995, Taylor argues that a trial court would have characterized the bulk of his assets as his separate property that would not be before the court for division. In essence, Taylor claims that Goddard erred by recommending settlement based on a failure to properly analyze Connell. But because the record reflects that Goddard’s advice was based on the exercise of informed judgment, this claim is barred by the judgmental immunity doctrine. Halvorsen, 46 Wn. App. at 718. “In general, mere errors in judgment or in trial tactics do not subject an attorney to liability for legal malpractice.” Halvorsen, 46 Wn. App. at 717. This is particularly true when the error involves an uncertain, unsettled, or debatable proposition of law. Halvorsen, 46 Wn. App. at 717. As a matter of law, an expert’s statement that she would have conducted litigation differently does not constitute a basis for a legal malpractice claim. Halvorsen, 46 Wn. App. at 718.
As long as an attorney conducts reasonable research to ascertain relevant legal principals and makes an informed judgment, he or she is immune from judgmental liability. Halvorsen, 46 Wn. App. at 718. Taylor has not identified any issue of material fact as to whether Goddard’s advice was based on the exercise of informed judgment based on relevant legal authority. The record reflects that Goddard consulted with Malcolm Edwards and informed Taylor that he and Edwards believed that Connell, which was reported less than one month before Moran filed her lawsuit, would be controlling authority in the trial court’s analysis of Moran’s claims. In Connell, our Supreme Court held that if a party to a meretricious relationship can establish that separate property increased in value due to unreimbursed “community” funds or efforts, any such increase in value would be before the court for a just and equitable distribution. Connell, 127 Wn.2d at 352.
Because the majority of Taylor’s assets was held by his three corporations, Goddard recognized that Moran would attempt to establish that the corporations increased in value due to unreimbursed community contributions. Goddard therefore advised Taylor that if he continued to trial, he faced a significant risk that Moran would succeed. Based on that risk, Goddard advised Taylor to settle early in the litigation. Goddard Letter to Taylor (“Based upon the information that I have gathered in our meetings, I believe that she has substantial claims against a significant portion of your estate.”); Goddard Letter to Taylor (“In reaching a conclusion that this matter should be settled, we have heavily relied upon the case of Connell v. Francisco, . . . because it is the primary and leading case in this area[.]”).
Even Taylor’s own expert, Michael Kovach, recognized that separate property could very well be at risk in a lawsuit to allocate assets based on a meretricious relationship. Contrary to Mr. Hallett’s assertion, Hallert Decl. at 13(d), there is “substantial authority” for a non-owner partner in a meretricious relationship to claim an interest in the increase in value of a business, even when the business is wholly owned separate property of the owner’s partner. See Lindemann v. Lindemann, 92 Wn. App. 64, 77, 960 P.2d 966 (1998), rev. denied, 137 Wn.2d 1016
(1999); Connell v. Francisco, 127 Wn.2d 339, 351, 898 P.2d 831 (1995) (“when the funds or services owned by both parties are used to increase the equity or to maintain or increase the value of property that would have been separate property had the couple been married, there may arise a right of reimbursement in the community”).
Even assuming that Taylor could establish a breach of the attorney’s standard of care, he cannot demonstrate that any breach proximately caused his claimed damages. To establish proximate cause, a plaintiff in a legal malpractice claim must demonstrate that he would have achieved a better result if the attorney had not been negligent. Sherry v. Diercks, 29 Wn. App. 433, 437, 628 P.2d 1336 (1981). Taylor argues that had he gone to trial on Moran’s claims, his separate property interests in his three corporations would not be at risk. In light of the trial court’s later finding that Taylor was the alter ego of his corporations, we disagree.
The trial court properly granted summary judgment on this claim. Taylor also failed to identify a genuine issue of fact for trial as to whether Goddard breached any duty by allowing Taylor to negotiate with Moran and by failing to conduct discovery. Taylor’s reliance on the declaration of Donna Johnston to establish the applicable standard and any error or omission on Goddard’s part is misplaced. Rather than evaluating the credibility or weight of her declaration as opposed to some other expert, the trial court held that Johnston’s declaration was “simply too summary, nonspecific and conclusionary [sic] for this Court to evaluate and to conclude that it would be a basis to find any breaches of the standard of care.” Brief of Respondent Reed McClure, Appendix A, at 3.
A review of the declaration supports the trial court’s conclusion. Johnston bases her comments solely on Taylor’s declaration filed in opposition to summary judgment, asserts her belief that the Rules of Professional Conduct preclude an attorney from advising a client to negotiate directly with an opposing party, and asserts that she would have conducted discovery sooner and differently. Johnston’s declaration is insufficient to establish a legal malpractice claim. Halvorsen, 46 Wn. App. at 718 (expert’s statement that she would have conducted litigation differently barred by judgmental immunity doctrine); Hizey v. Carpenter, 119 Wn.2d 251, 261-65, 830 P.2d 646 (1992) (expert’s opinion that attorney violated Rules of Professional Conduct does not establish a breach of a legal duty of care). To the extent Taylor complains that Goddard breached his duty of care by making Taylor negotiate directly with Moran, the record reveals that Taylor wanted to speak directly with Moran and directed Goddard to set up a meeting between the two of them without any attorneys present. Even viewed in a light most favorable to Taylor, these facts demonstrate that Goddard’s actions could not have proximately caused Taylor’s claimed damages.
Reed McClure Defendants
For each of Taylor’s claims against Reed McClure, the trial court correctly determined that Taylor failed to establish a required element of a legal malpractice claim.
1. “Tax on tax”
Taylor claims Reed McClure breached the standard of care by failing to advise him at two critical points that paying Moran’s taxes on the initial $600,000 would trigger additional taxes in subsequent years:
(a) before he signed the agreement in 1996 and
(b) before he directed Moran to characterize the $600,000 as income and allowed her to use the escrow money to pay her taxes on April 15, 1997.
To the extent Taylor complains of Reed McClure’s tax advice in 1996, the record indicates that Taylor decided to sign the agreement regardless of the tax consequences. Taylor apparently believed, despite his attorneys’ advice to the contrary, that the $600,000 could be treated as a gift that would be tax free to both himself and Moran. He acknowledged Roger Stouder’s contrary position and chose to go ahead with the agreement and “worry about her taxes later.” Based on the record, the trial court properly granted summary judgment on this claim because Taylor could not establish proximate cause.
Taylor also claims that Reed McClure failed to advise him that paying Moran’s taxes on the initial $600,000 in 1997 would trigger additional taxes in subsequent years. Brief of Appellants, at 22. But Taylor’s expert, Michael Kovach, testified that if Reed McClure advised Taylor of the tax on tax before April 15, 1997, when Taylor allowed Moran to report the $600,000 as income and agreed to pay her taxes, there was no breach of the standard of care in 1997. The record reveals that Taylor received a letter from Dean Little on April 14, 1997, advising him of his choices and tax consequences regarding Moran’s action to enforce the agreement and indicating his “responsibility to pay the tax on the $600,000 ($234,233) and the tax on the tax (approximately $152,000).” Taylor testified that it was “the first time I had seen the options defined as well as this, as understandably to me as this was defined.”
Even viewed in a light most favorable to Taylor, these facts support the trial court’s decision to grant summary judgment on this issue because Taylor could not demonstrate that Reed McClure breached any standard of care.
2. Mischaracterizing $150,000 as Deferred Compensation
Even assuming, based on Kovach’s expert testimony, that Reed McClure breached the applicable standard of care by characterizing the $150,000 as deferred compensation from Dendros, the trial court found that the breach was not the proximate cause of any damage to Taylor or his corporations. On appeal, Taylor fails to identify any specific facts to demonstrate a genuine issue for trial regarding damages. Taylor asserts that this characterization could result in negative treatment by the IRS, tax penalties, or criminal prosecution, but he fails to identify any actual damages supported by the record. Brief of Appellants, at 23-24.
3. United Shipping Company
Again assuming that Reed McClure breached the applicable standard of care by failing to advise Taylor that United Shipping Company could lose its favorable tax status if it made the $600,000 distribution, summary judgment was still appropriate. Taylor failed to identify any evidence in the record to establish that the breach proximately caused any actual damages. Brief of Appellants, at 24.
4. Alternative Characterizations
In his declaration, Kovach states that Reed McClure failed to adequately analyze and substantiate a characterization of the $600,000 that would be tax free to Moran.
Taylor argues that this failure caused him to incur responsibility for Moran’s taxes when she characterized the payment as income. Brief of Appellants, at 25-26. But Kovach’s declaration also demonstrates that there is not a definitive rule for characterizing a transfer of assets based on a “dissolution” of a meretricious relationship, and the tax rules governing divorce do not apply to meretricious relationships.
Based on Kovach’s testimony, the trial court properly determined that as a matter of law, the potential for different tax characterizations in these circumstances raised an uncertain, unsettled, and debatable proposition of law and concluded that the claim was barred by the judgmental immunity doctrine. Taylor failed to raise a genuine issue of fact for trial as to whether Stouder failed to ascertain relevant legal principles or to make an informed judgment. Therefore, summary judgment was appropriate.
5. Negligent Drafting of Settlement Agreement
Taylor contends that Reed McClure should have drafted the agreement to require Moran to file her taxes in conformity with the agreement. Again, even assuming a breach of the applicable standard of care, Taylor fails to demonstrate with specific facts that he would have achieved a better result but for Reed McClure’s faulty drafting. As the trial court found, there is nothing to indicate that Moran would have agreed to any other terms to improve Taylor’s position. On appeal, Taylor merely reasserts the same arguments without identifying any facts in the record to demonstrate a genuine issue for trial. The trial court properly granted summary judgment.
Motion to Amend
On August 31, 2000, Taylor moved for leave to amend his complaint to add Scott Wakefield and Malcolm Edwards as defendants and add claims under the Consumer Protection Act against all defendants. The trial court denied the motion on September 12, 2000, and denied Taylor’s motion to reconsider on October 11, 2000. Judge Jordan listed the following reasons for his decision:
1) Attempting to name as defendants [Scott] Wakefield and [Malcolm] Edwards, known at all times to the plaintiffs, at a point nearly 18 months after filing of the original Complaint constitutes inexcusable neglect;
2) Plaintiffs’ attempt to amend their Complaint to add violations of the Consumer Protection Act 18 months subsequent to the filing of the original Complaint on facts known to the plaintiffs since the time of original filing would unduly prejudice R. Hays Goddard and the law firm of Goddard Wetherall and defendant Dean Little, the estate of Roger Stouder, and Reed McClure, on the basis the time for filing dispositive motions has passed, new experts would need to be retained, discovery would need to be re-taken and the trial would require a third continuance.
Despite the trial court’s clear finding of prejudice to the defendants, Taylor assigns error to the denial of leave to amend the complaint, claiming that the defendants failed to show prejudice.
Brief of Appellants, at 27-28.
A trial court’s decision on a motion for leave to amend will not be disturbed on appeal absent a manifest abuse of discretion or a failure to exercise discretion. Caruso v. Local Union No. 690, 100 Wn.2d 343, 351, 670 P.2d 240 (1983). Failure to name known potential defendants is inexcusable neglect justifying the denial of a motion to amend. Haberman v. Washington Pub. Power Supply Sys., 109 Wn.2d 107, 744 P.2d 1032, 750 P.2d 254 (1987). Taylor does not argue that the trial court abused its discretion or failed to exercise discretion and fails to show any grounds for reversal.
Arbitration
Because we affirm summary judgment, we need not address Taylor’s claim that the arbitration award in Reed McClure’s counterclaim for unpaid legal fees should be overturned. Because we choose to address the summary judgment decision on the merits, we do not address Reed McClure’s argument that Taylor’s appeal is barred by the arbitration award.
WE CONCUR: GROSSE, J., APPELWICK, J.