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Hamilton v. Sommers

Supreme Court of South Dakota

October 29, 2014

ROGER HAMILTON, Plaintiff and Appellant,
v.
RICHARD A. SOMMERS, MELISSA E. NEVILLE and BANTZ, GOSCH & CREMER, PROF., LLC, Defendants and Appellees

Argued March 24, 2014.

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[Copyrighted Material Omitted]

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APPEAL FROM THE CIRCUIT COURT OF THE FIFTH JUDICIAL CIRCUIT ROBERTS COUNTY, SOUTH DAKOTA. THE HONORABLE GENE PAUL KEAN, Retired Judge.

DAN RASMUS, Minneapolis, Minnesota and TIMOTHY L. JAMES, Yankton, South Dakota, Attorneys for plaintiff and appellant.

THOMAS J. WELK, JASON R. SUTTON, MEGHAN K. WOSTER of Boyce, Greenfield, Pashby & Welk, LLP, Sioux Falls, South Dakota, Attorneys for defendants and appellees.

WILBUR, Justice. KONENKAMP, ZINTER and SEVERSON, Justices, concur. GILBERTSON, Chief Justice, dissents.

OPINION

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WILBUR, Justice

[¶1] Roger Hamilton appeals summary judgment dismissing his claims of legal negligence or malpractice and breach of fiduciary duty brought against his former attorneys. We affirm in part, reverse in part, and remand.

Background

[¶2] This case began as a dispute related to 112 bee sites located in Marshall, Roberts, and Day counties in northeast South Dakota. In order to place bee hives onto private property, the hive owner must secure written permission from the landowner and file the permission slip with the South Dakota Department of Agriculture (Department). Here, the 112 sites were previously registered to James Paysen. Paysen sold the 112 sites in the mid-1990s to John Kelley; but significantly, Kelley did not register them.[1] In 2006, Kelley sold the 112 sites to Adee Honey Farms, which was owned by Richard Adee.

[¶3] Around the same time as Adee's purchase, plaintiff/appellant Roger Hamilton, a local beekeeper, learned that Kelley was " going under." Hamilton obtained an " abandonment map" from another local beekeeper (Mike Block) to determine what sites may be available. Block also prepared and gave Hamilton a revocation form used to revoke a landowner's permission. Using the map, revocation forms, and new permission forms, Hamilton acquired 10 bee sites formerly registered to Paysen on which Adee had unregistered hives. Block, along with another regional beekeeper (Monte Amman), acquired the other 102 sites. Hamilton and Block drove together to Pierre to register their permission forms with the Department.

[¶4] Claiming the 112 sites as his own, Adee petitioned for an administrative hearing seeking to have the sites registered in his name. The hearing occurred on May 15, 2007. Hamilton, Block, and Amman prevailed; thus, the Office of Hearing Examiners found Hamilton had properly registered his 10 bee sites.

[¶5] Following the administrative hearing, Adee sued Hamilton, Block, and Amman on August 25, 2007, jointly and severally, for interference with business relations and/or expectancy, unfair competition, and civil conspiracy (Underlying Lawsuit). Seeking representation, Hamilton, Block, and Amman met with attorneys Richard Sommers and Melissa Neville of Bantz, Gosch & Cremer, L.L.C. (collectively " Appellees" ) on September 27, 2007, in Aberdeen, South Dakota.

[¶6] At the meeting, Appellees discussed the potential conflict of interest that could occur when representing all three defendants. Appellees asked whether Hamilton, Block, or Amman had insurance coverage that would compel the insurance carriers to respond to Adee's suit. Block and Amman replied affirmatively. Appellees wrote a demand letter to Block and Amman's carrier requesting that the insurance company defend the lawsuit, which the carrier declined. Hamilton allegedly said he did not have insurance; [2] Appellees did not inquire any further. In hindsight, Hamilton did, in fact, have insurance in that regard. At the meeting's

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conclusion, Hamilton, Block, and Amman orally agreed to Appellees' representation.

[¶7] On October 3, 2007, Appellees sent a letter to Hamilton, Block, and Amman confirming the joint representation and enclosing a conflict of interest waiver. Block and Amman signed and returned the waiver; Hamilton claims he never received, signed, or returned the waiver.

[¶8] On July 7, 2009, Adee offered to settle solely with Amman if Amman transferred his bee sites to Adee and testified against Hamilton and Block in the Underlying Lawsuit. Appellees informed Hamilton, Block, and Amman of the settlement offer. Amman stated that he could not settle because, unbeknownst to Hamilton, Block, and Appellees, he had sold his business " including bee hive locations" on January 5, 2009, to Whetstone Valley Honey, Inc. (Whetstone). Amman's sale undercut the defense's theory that Adee had no legally protected interest in the bee sites because the permissive use was revocable at any time and, thus, the bee sites could not be sold. Additionally, the sale valued each bee site at approximately $5,000, allowing Adee to precisely state his alleged damages. Surprised by the sale, Appellees explained to the defendants that it was a major problem for their defense.

[¶9] The next week on July 13, 2009, Judge John Flemmer held a pre-trial conference in the Underlying Lawsuit. There, Judge Flemmer denied Appellees' motions to exclude evidence of Amman's sale and for a continuance to add witnesses who could explain the sale. During the conference, Appellees recognized there may be a conflict of interest between defendants if evidence of the sale was presented stating: " there may be an irretrievable conflict now between Mr. Amman and the other two Defendants." [3]

[¶10] After the pre-trial conference, Appellees raised the possibility of settling. Adee's demand was a settlement with all defendants or none. Hamilton expressed reservations about settling, but, eventually, Hamilton, Block, and Amman signed a settlement agreement on July 17, 2009. Under the settlement terms, Hamilton, Block, Amman, and Whetstone agreed to transfer their interests in the bee sites to Adee and to send landowners letters requesting they register their sites with Adee. Additionally, Hamilton, Block, and Amman agreed to pay Adee $7,500 for honey delivery to the bee sites' landowners for the 2009 season.

[¶11] After the settlement, Hamilton hired a new attorney (John Wiles) and advised Appellees that he did not intend to comply with the agreement. Block also hired new counsel (Lee Schoenbeck) and refused to comply with the agreement. Adee moved to enforce the agreement, and during a hearing, Judge Flemmer rejected Hamilton and Block's argument that the settlement was unenforceable because of duress or fraud. As part of the court's findings of fact, Judge Flemmer specifically found that Hamilton had signed the conflict waiver form that Appellees claim they mailed to him. Hamilton did not appeal Judge Flemmer's decision.

[¶12] On September 29, 2010, Hamilton sued Appellees asserting three causes of action: legal malpractice, breach of fiduciary duty, and negligent infliction of emotional distress, all based on an alleged conflict of interest relating to Appellees' representation of co-defendants Hamilton, Block, and Amman in the Underlying Lawsuit.

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On May 31, 2012, Hamilton amended his complaint adding an allegation of legal malpractice for Appellees' alleged failure to properly investigate whether Hamilton had applicable insurance coverage.

[¶13] During discovery, Hamilton retained David Lillehaug, then a partner at a Minneapolis law firm, as an expert witness.[4] As to the conflict of interest claim, Lillehaug opined that the seriousness of the conflict between Hamilton, Block, and Amman made the conflict of interest non-consentable, and, even if it were consentable, Appellees breached the standard of care by failing to obtain informed consent from Hamilton. Also, Lillehaug opined that Appellees breached the standard of care by failing to withdraw or move for continuance when Adee offered to settle with only one defendant (Amman) when Amman's sale came to light. Lillehaug based his conflict of interest opinion on his practice under the Model Rules of Professional Conduct Rule 1.7, and in his interpretation, its similarity with South Dakota's Rules of Professional Conduct Rule 1.7. Lillehaug testified, in his opinion, that " the standard of care with respect to conflict of interest . . . is essentially a national standard of care and that there is nothing unique about South Dakota in that regard." As to the insurance investigation claim, Lillehaug opined that Hamilton's statements that he had no insurance " warrant[ed] further inquiry and investigation." Lillehaug based his insurance investigation opinion on his career experience, which occurred almost entirely in Minnesota, and on information from other attorneys, including two attorneys licensed to practice in South Dakota (one based in Washington, D.C.).

[¶14] Appellees moved to strike Lillehaug's opinions asserting he applied the wrong standard of care to both the conflicted representation and insurance investigation claims. Appellees also moved for summary judgment asserting Hamilton's failure to meet his initial burden of presenting evidence to support his claims. Hamilton agreed to dismiss his negligent infliction of emotional distress claim.

[¶15] On April 15, 2013, the circuit court, Judge Gene Paul Kean presiding, granted Appellee's motion to strike, stating, Lillehaug " lacked adequate foundation to testify about the applicable standard of conduct" and his expert testimony would be " irrelevant, unhelpful to the jury, and confusing to the jury because his opinions [were] based upon a national standard of conduct[.]" The circuit court also granted Appellees' motion for summary judgment. On the conflicted representation claim, the court found Hamilton failed to provide sufficient evidence of proximate cause and damages arising from the settlement. On both the conflicted representation and insurance investigation claim, the court found Hamilton failed to provide sufficient evidence of a breach of the standard of care because Hamilton failed to provide admissible expert testimony. The circuit court found that even if the expert testimony was admissible, Hamilton failed to provide admissible expert testimony that Appellees violated the standard of care applicable to attorneys in the same or similar locality as Roberts County, which the court determined to be a South Dakota statewide standard of conduct.

[¶16] Hamilton timely appeals, raising the following issues: (1) whether the circuit court erred in striking Lillehaug's expert opinion; (2) whether South Dakota

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should adopt a national standard of care for legal malpractice claims; (3) whether the circuit court erred in finding that collateral estoppel precluded litigation on the conflicted representation claim; (4) whether the circuit court improperly weighed the evidence as to the proximate cause of Hamilton's damages; and (5) whether the circuit court committed reversible error by denying a continuance after striking Lillehaug's testimony.

Standard of Review

[¶17] " Summary judgment is an extreme remedy, . . . not intended as a substitute for a trial." Discover Bank v. Stanley, 2008 S.D. 111, ¶ 19, 757 N.W.2d 756, 762 (quoting Cont'l Grain Co. v. Heritage Bank, 1996 S.D. 61, ¶ 17, 548 N.W.2d 507, 511). Our review of summary judgment is well settled:

We must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists. Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of a summary judgment is proper.

De Smet Farm Mut. Ins. Co. of S.D. v. Busskohl, 2013 S.D. 52, ¶ 11, 834 N.W.2d 826, 831 (quoting Brandt v. Cnty. of Pennington, 2013 S.D. 22, ¶ 7, 827 N.W.2d 871, 874). We review the circuit court's findings of fact " under the clearly erroneous standard." Peterson v. Issenhuth, 2014 S.D. 1, ¶ 15, 842 N.W.2d 351, 355 (quoting Eagle Ridge Estates Homeowners Ass'n, Inc. v. Anderson, 2013 S.D. 21, ¶ 12, 827 N.W.2d 859, 864). We review the circuit court's conclusions of law de novo. Id.

[¶18] Further, we review " a circuit court's decision to admit or deny an expert's testimony under the abuse of discretion standard." Burley v. Kytec Innovative Sports Equip., Inc., 2007 S.D. 82, ¶ 12, 737 N.W.2d 397, 402. An abuse of discretion " is a fundamental error of judgment, a choice outside the range of permissible choices, a decision, which, on full consideration, is arbitrary or unreasonable." Thurman v. CUNA Mut. Ins. Soc'y, 2013 S.D. 63, ¶ 11, 836 N.W.2d 611, 616.

Analysis

[¶19]Whether the circuit court erred in striking Lillehaug's expert opinion, which was based upon a national standard of care.

[¶20] Hamilton contends that his expert's (Lillehaug's) testimony was reliable and any deficiency should go towards the weight, not admissibility, of his testimony. Appellees contend that Lillehaug based his testimony on an incorrect standard of care (national) and, thus, the circuit court appropriately excluded Lillehaug's testimony. These arguments touch on the first two issues raised by Hamilton; therefore, we will address those issues together.

[¶21] A negligence action in general requires four elements to be proven. As stated in Bernie v. Catholic Diocese of Sioux Falls, " [i]n order to prevail in a suit based on negligence, a plaintiff must prove duty, breach of that duty, proximate and factual causation, and actual injury." 2012 S.D. 63, ¶ 15, 821 N.W.2d 232, 240 (quoting Highmark Fed. Credit Union v. Hunter, 2012 S.D. 37, ¶ 9, 814 N.W.2d 413, 415).

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Moreover, a successful claim against an attorney for legal malpractice requires proof of four elements: " (1) the existence of an attorney-client relationship giving rise to a duty, (2) the attorney, either by an act or failure to act, breached that duty, (3) the attorney's breach of duty proximately caused injury to the client, and (4) the client sustained actual damage." Peters on, 2014 S.D. 1, ¶ 17, 842 N.W.2d at 355.

[¶22] " [T]he existence of a duty is a question of law to be determined by the court" and not the jury. Janis v. Nash Finch Co., 2010 S.D. 27, ¶ 8, 780 N.W.2d 497, 500 (quoting Small v. McKennan Hosp., 403 N.W.2d 410, 413 (S.D. 1987)). " The court determines, as a matter of law, the existence and scope or range of that duty." 57A Am.Jur.2d Negligence § 78 (2014). Depending on the facts of the case, locality may or may not be one of the considerations of the court in determining duty as a matter of law. " In terms of legal malpractice, as in tort law generally, the standard of care is the behavioral component of duty." Michael P. Ambrosio & Denis F. McLaughlin, The Use of Expert Witnesses in Establishing Liability in Legal Malpractice Cases, 61 Temp. L. Rev. 1351, 1357-58 (1988). " Once the court determines that the law imposes a duty[,] . . . it must then determine what conduct the law requires to fulfill that legal duty." Id.

[T]he required standard of conduct is the exercise of professional care and skill. Although this general legal standard of care is established by law, the question of whether the legal standard of care has been fulfilled in a particular case is decided by the malpractice trier of fact. On this issue, the role of the expert witness is critical. Except in certain cases, it is an expert witness who must establish the particular standard of care, i.e., the particular level of professional conduct required to meet the legal standard of care, and whether an attorney's conduct conforms to this standard of ...

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