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Gregory & Swapp, PLLC v. Kranendonk

Supreme Court of Utah

July 26, 2018

Gregory & Swapp, PLLC, and Erik Highberg, Appellants and Cross-Appellees,
v.
Jodi Kranendonk, Appellee and Cross-Appellant.

          On Direct Appeal Third District, Salt Lake The Honorable Royal I. Hansen No. 100923050

          Gregory J. Sanders, Clemens A. Landau, Patrick C. Burt, Michael D. Zimmerman, Troy L. Booher, Salt Lake City, for appellants and cross-appellees

          Shaun L. Peck, John D. Luthy, Brandon J. Baxter, Matthew David Lorz, Logan, for appellee and cross-appellant

          Chief Justice Durrant authored the opinion of the Court, in which Associate Chief Justice Lee, Justice Pearce, Justice Petersen, and Judge Mortensen joined. Having recused himself, Justice Himonas did not participate herein; Court of Appeals Judge David N. Mortensen sat.

          OPINION

          Durrant, Chief Justice

         Introduction

         ¶1 Erik Highberg, a personal injury attorney for Gregory & Swapp, PLLC, failed to bring a claim against two truck drivers who severely injured Mr. Highberg's client, Jodi Kranendonk, before the statute of limitations ran on Ms. Kranendonk's claim. Mr. Highberg then failed to disclose to Ms. Kranendonk for ten months the fact that he missed the statute of limitations. During that time, he sought other legal avenues to correct his mistake. Ms. Kranendonk ultimately sued Mr. Highberg and Gregory & Swapp (collectively, the Swapp Defendants) for legal malpractice, breach of contract, breach of fiduciary duty, and negligent hiring, training, and supervision.

         ¶2 At trial, Mr. Highberg testified that he withheld information from Ms. Kranendonk because he wanted to protect her from stress and worry. In response to this testimony, she sought to admit two statements in which he had written that she was becoming "a pain [in] the ass" and was "a moron." The district court refused, under rule 403 of the Utah Rules of Evidence, to admit these statements and the trial went forward.

         ¶3 The four claims ultimately went to a jury, which found in favor of Ms. Kranendonk on each. The jury first awarded her $750, 000, the amount the jurors believed she would have received if Mr. Highberg had timely brought her personal injury claim against the truck drivers. The jury also awarded her $2.75 million for non-economic damages, i.e., emotional distress she sustained as the result of Mr. Highberg's malpractice in this case. This second award did not relate in any way to the emotional distress she sustained from the original personal injury. The jury did not award punitive damages.

         ¶4 After the jury's decision, Ms. Kranendonk moved for attorney fees and litigation expenses on the ground that the Swapp Defendants had breached their fiduciary duties. The district court awarded her $1, 166, 666.67 in attorney fees-the amount she owed under her contingency fee agreement-but did not award her litigation expenses.

         ¶5 After trial, the Swapp Defendants moved for judgment notwithstanding the verdict on the jury's second award of $2.75 million, arguing that non-economic damages unrelated to the original personal injury claim should not be awarded in this instance. The district court denied their motion.

         ¶6 The Swapp Defendants challenge this decision on appeal. Specifically, they argue that this case does not qualify as one of the "rare" cases where non-economic damages can be recovered for breach of contract, because emotional distress was not a foreseeable result of a breach in this case and was not explicitly contemplated by the parties when they formed their agreement. They also argue that the non-economic damage award cannot be supported under a breach of fiduciary claim, because there is insufficient evidence to establish an actionable breach of fiduciary duty. We agree with both arguments and so vacate the jury's $2.75 million award for non-economic damages.

         ¶7 We also vacate the court's attorney fees award because Ms. Kranendonk's breach of fiduciary duty claim failed and this was the only claim that could support this award. And, for the same reason, we hold that the district court correctly denied her litigation expenses.

         ¶8 Lastly, Ms. Kranendonk challenges the district court's decision to exclude Mr. Highberg's two written statements- statements she argues are necessary to support her prayer for punitive damages. But because she fails on her breach of fiduciary claim, punitive damages cannot be awarded in this case. Any decision we could render on this issue therefore would be meaningless and so we hold that this issue is moot.

         Background

         ¶9 On June 19, 2006, Jodi Kranendonk suffered severe injuries when two semi-trucks collided with her car outside of Portland, Oregon. She retained Gregory & Swapp, PLLC dba Craig Swapp & Associates and Erik Highberg to bring a negligence action against the truckers. Mr. Highberg filed a complaint in Oregon, but failed to properly serve the truckers within sixty days, as required under Oregon law. A year later, in June 2008, he filed the complaint a second time and again failed to timely serve the truckers. But this time his failure was fatal-the statute of limitations had run on the claim. Ms. Kranendonk's negligence claims against the truckers were subsequently dismissed with prejudice.

         ¶10 After realizing that Ms. Kranendonk's claim was time-barred, and in an attempt to fix his error in missing the limitation deadline, Mr. Highberg moved in an Oregon state court for an extension of time to serve the truckers, which was denied in November 2008. He filed an appeal of his denial in February 2009, which failed. During this ten-month period, Mr. Highberg failed to disclose to Ms. Kranendonk, despite having multiple conversations with her about her case, that her claim was now time-barred. Finally, in May or June of 2009, he revealed to her that he had failed to bring a valid action within the applicable statute of limitations and that she could no longer bring a successful personal injury claim against the truckers.

          ¶11 Ms. Kranendonk was "devastated" at the news. As Mr. Highberg was aware, she was a "very anxious person" and the news was catastrophic to her. She retained a new law firm that filed legal malpractice claims against the Swapp Defendants on her behalf. Her complaint alleged claims of legal malpractice, breach of contract, breach of fiduciary duty, fraudulent non-disclosure, and negligent hiring, training, and supervision.[1] Ms. Kranendonk also sought punitive damages. The case went to trial in 2015.

         ¶12 At a pre-trial hearing, Ms. Kranendonk unsuccessfully attempted to bring in two statements Mr. Highberg had written describing his interaction with her. The first indicated that he felt she was becoming "a pain [in] the ass," and the second showed that he believed she was "a moron." The district court kept out these statements under rule 403 of the Utah Rules of Evidence. At trial, Mr. Highberg testified that he did not disclose to Ms. Kranendonk the fact that the statute of limitations had run on her claim, because he cared for her and did not want to cause her more stress. In response to this testimony, Ms. Kranendonk moved to introduce the two statements to show that Mr. Highberg's actions were not motivated by his solicitude for her well-being, but rather that he harbored ill will toward her. The district court rejected this motion, stating that the two statements were "not directly on point" and "hardly suggest that he was acting against her interest intentionally" or "that he didn't care about her."

         ¶13 When the trial concluded, the district court provided the jury with instructions regarding each of the five claims brought by Ms. Kranendonk. Importantly, the court instructed the jury that the conduct required to establish her legal malpractice claim was not the same as the conduct required to establish her breach of fiduciary duty claim. The court defined legal malpractice as failing "to use the same degree of care, skill, judgment and diligence used by reasonably careful attorneys under similar circumstances." But the court instructed the jury that it need not determine whether the Swapp Defendants committed legal malpractice because it "ha[d] found the [Swapp Defendants] negligently performed legal services." Accordingly, the jury was only asked to determine whether the Swapp Defendants' legal malpractice "was a cause of harm to [Ms.] Kranendonk."

         ¶14 The jury was asked, however, to determine whether the Swapp Defendants had breached their fiduciary duties in this case. The court then set forth the conduct that would constitute a breach of fiduciary duty. It explained that in order for Ms. Kranendonk to prevail on this claim she must show that the Swapp Defendants "conceal[ed] important facts or law from [her]; . . . deceiv[ed] [her]; . . . plac[ed] their own interests ahead of the interests of [her] by failing to inform [her] of a conflict of interest created by the [Swapp Defendants'] acts or omissions;" or "fail[ed] to advise [her] to seek competent counsel after a conflict of interest arose between the [Swapp Defendants] and [her]." The court also stated that Ms. Kranendonk must prove that "[t]he acts or omissions of the [Swapp Defendants] were a cause of [her] injury."

         ¶15 The jury rendered a verdict in favor of Ms. Kranendonk on legal malpractice, breach of contract, breach of fiduciary duty, and negligent hiring, training, and supervision grounds, and awarded her $750, 000 to compensate for the injuries she suffered in the underlying accident. These damages included $80, 000 in economic damages and $670, 000 in non-economic damages related to the accident. The jury also awarded her an additional $2.75 million for non-economic damages she sustained as a result of the Swapp Defendants' malpractice. The jury did not award punitive damages.

         ¶16 The Swapp Defendants thereafter filed a motion for judgment notwithstanding the verdict (JNOV) under rule 50(b) of the Utah Rules of Civil Procedure. They sought to negate Ms. Kranendonk's entitlement to the $2.75 million jury award of non-economic damages under all four legal theories-legal malpractice, breach of contract, breach of fiduciary duty, and negligent hiring, training, and supervision. In Ms. Kranendonk's response to the motion, she conceded that non-economic damages unrelated to the underlying case were not available under her legal malpractice and negligent hiring, training, and supervision claims, but she argued that they were available under her breach of contract and breach of fiduciary duty claims. The district court agreed and denied the Swapp Defendants' motion, upholding the $2.75 million jury award under these two claims.

         ¶17 After the court upheld the jury's verdict in post-trial proceedings, Ms. Kranendonk moved for attorney fees and the district court awarded her $1, 166, 666.67-the contingency fee amount she agreed to pay when she hired the new law firm to represent her in her legal malpractice suit. The district court also awarded her $17, 977.82 in costs, but did not award the additional $177, 911.64 she had sought in litigation expenses.

         ¶18 The Swapp Defendants timely appealed the district court's decision to uphold the $2.75 million jury award for non-economic damages unrelated to the personal injury case and the court's award of attorney fees. The Swapp Defendants do not challenge the $750, 000 jury award for damages related to the personal injury case. Ms. Kranendonk cross-appeals the district court's decision to exclude Mr. Highberg's two statements demonstrating his ill will toward her and the court's decision not to award litigation expenses. We have jurisdiction to hear this case pursuant to Utah Code section 78A-3-102(3)(j).

         Standard of Review

         ¶19 The Swapp Defendants raise two issues on appeal: first, whether the district court erred in denying their JNOV motion to set aside the $2.75 million jury award of non-economic damages arising from their malpractice; and second, whether the court erred in awarding Ms. Kranendonk attorney fees in the amount of the full contingency fee. "[A] district court may grant a JNOV motion only if there is no 'basis in the evidence, including reasonable inferences which could be drawn therefrom, to support the jury's determination.'"[2] But "[w]e review rulings on JNOV motions for correctness."[3] Likewise, "[w]hether attorney fees are recoverable in an action is a question of law, which we review for correctness."[4]

         ¶20 Ms. Kranendonk raises two additional issues for review: whether the district court erred in refusing to award litigation expenses and whether the court erred in excluding Mr. Highberg's two statements under rule 403 of the Utah Rules of Evidence. Whether a court may award litigation expenses is a question of law and so is reviewed for correctness.[5] But "we review [the amount of an award of litigation expenses] under an abuse of discretion standard."[6] Also, "[w]e review a trial court's decision to admit or exclude evidence under Rule 403 of the Utah Rules of Evidence under an abuse of discretion standard, and will not overturn a lower court's determination of admissibility unless it is beyond the limits of reasonability."[7]

         Analysis

         ¶21 On appeal, the Swapp Defendants first argue that the district court erred in refusing to vacate the $2.75 million jury award for non-economic damages unrelated to the personal injury case. Specifically, they argue that Utah law precludes recovery of damages beyond the amount the plaintiff would have recovered in the underlying case-i.e., "the case within the case." They assert that such damages are precluded whether the plaintiff brings a malpractice suit under the theory of legal malpractice, breach of contract, or breach of fiduciary duty.

         ¶22 We have observed on many occasions that "a malpractice action . . . necessarily presents a 'case within a case.'"[8] In other words, a case involving a malpractice action necessarily depends upon an attorney's conduct in a separate, underlying case and whether, absent such conduct, "the underlying suit would have been successful."[9] While we typically have looked to the underlying case when addressing the evidence necessary to establish proximate cause in legal malpractice cases, [10] we have never considered whether damages are available beyond those damages awardable in the underlying case. This case therefore presents an issue of first impression.

         ¶23 The court of appeals has, however, recently addressed this issue. In a prior appeal in this same case, the court of appeals held that damages in a malpractice suit should generally be limited to those damages recoverable in the underlying case.[11] Specifically, it asserted that "[t]he measure of damages is generally held to be the value of the plaintiff's lost claim, that is, the actual amount the plaintiff would have recovered had she been successful in the underlying case."[12] The court relied on other jurisdictions for this assertion.[13]

         ¶24 As a general matter, the court of appeals is correct. In most legal malpractice cases, whether brought under negligence, breach of contract, or breach of fiduciary duty theories, "a plaintiff's damages . . . are limited to the actual amount the plaintiff would have recovered had he been successful in the underlying case."[14] But there may be exceptions to this rule depending on which legal theory is asserted.

         ¶25 We have long held that "[a]n action for legal malpractice may be framed conceptually as either a tort or a breach of contract."[15] So, when bringing a legal malpractice suit, "[c]lients . . . may sue for damages based on breach of contract, breach of fiduciary duty, or negligence."[16] Usually, the elements required to prove negligence and breach of fiduciary duty in the legal malpractice context are "substantially the same, "[17] so a plaintiff's choice to classify its malpractice claim under one of the two theories does not cause "any difference in result."[18] This is so because "[m]ost rules applicable to negligence actions also apply to actions for breach of fiduciary duty."[19] But an action for breach of contract is "very different" from these other two legal malpractice theories.[20] The "[r]ules of contract, not rules of legal malpractice, govern an action" brought under a breach of contract theory.[21] In that vein, damages that may be awarded under these theories may also differ.

         ¶26 Below, the district court held that non-economic damages may be awarded beyond damages based on the case within the case when the plaintiff establishes legal malpractice under a breach of contract or breach of fiduciary duty theory.[22] The Swapp Defendants challenge the court's conclusion on these two grounds. Accordingly, we address whether an award of non-economic damages unrelated to the underlying case is appropriate under these two legal theories.

         I. Breach of Contract

         ¶27 The Swapp Defendants first argue that the $2.75 million jury award for non-economic damages cannot be supported under a breach of contract theory in this case. Because Ms. Kranendonk cannot point to specific language or obligations in her contract with Mr. Highberg that show that emotional damages were contemplated by them at the time they formed the contract, we hold that the district court erred in affirming the $2.75 million jury award under this theory.

         ¶28 Normally "there is no recovery of damages for mental anguish stemming from a breach of contract."[23] This is so because "an award of damages in a breach of contract case attempts to 'place the aggrieved party in the same economic position the party would have been in if the contract was not breached.'"[24] In the legal malpractice context, this means that typically the only emotional damages recoverable under a breach of contract theory are those stemming from the injury in the underlying case. But we have noted that an exception to this rule may exist in "unusual circumstances."[25]

         ¶29 In Cabaness v. Thomas, we held that "a non-breaching party may recover general and/or consequential damages related to emotional distress or mental anguish arising from a breach of contract when such damages were both a foreseeable result of the breach of contract and explicitly within the contemplation of the parties at the time the contract was entered into."[26] These requirements guarantee that "the applicability of such damages 'will always hinge upon the nature and language of the contract and the reasonable expectations of the parties.'"[27] Accordingly, we held that the exception is implicated only when the plaintiff can point to "specific language" and "obligations" in the contract that show that emotional damages were in contemplation of the parties at the time the parties formed the contract.[28] But this seldom happens.

         ¶30 Emotional damages for a breach of contract are awardable only in "rare cases" because "such damages are rarely a foreseeable result of breach."[29] While "[s]ome type of mental anguish, anxiety, or distress is apt to result from the breach of any contract which causes pecuniary loss," it is well established that these damages are not "the 'natural and probable' result of the breach" and "are deemed to be too remote to have been in the contemplation of the parties at the time the contract was entered into to be considered as an element of compensatory damages."[30] Something in the contract, therefore, must show that the parties contemplated granting relief for more than the typical mental anguish and discouragement that results from a breach of contract.

         ¶31 Cabaness illustrates this point. In Cabaness, we reversed a district court's grant of summary judgment against an employee seeking emotional damages for a breach of contract by his employer. There, we reviewed the employment contract, which stated that the employer would "not tolerate verbal or physical conduct by any employee which harasses, disrupts, or interferes with another's work performance or which creates an intimidating, offensive, or hostile work environment."[31] We noted the significance of this provision, stating that it appeared to be "specifically directed toward matters of mental concern and solicitude."[32] We explained that given "the unusual nature of the contractual obligations and the specific language of the contractual provisions," it was "possibil[e] that emotional damages were within the contemplation of the parties at the time the contract was entered."[33] We therefore concluded that questions of fact remained regarding whether "emotional damages were within the contemplation of the parties at the time the contract was formed," and accordingly remanded the case to the district court to make such a determination.[34] Cabaness therefore stands for the proposition that non-economic damages are supported under a breach of contract theory only where the specific language and nature of the contract demonstrates that such damages were contemplated.[35]

         ¶32 But here the district court misapplied Cabaness and the "rare" exception we articulated there. The court held that there was competent evidence supporting the finding that Ms. Kranendonk's emotional distress damages were foreseeable and explicitly contemplated by the parties. But the court failed to review the contract at issue. Instead, it improperly relied on testimony and extrinsic evidence to determine that emotional distress damages were contemplated. Specifically, it relied on testimony that Mr. Highberg knew Ms. Kranendonk was a "very anxious person," language from the Swapp Defendants' website asserting that they will "eliminate[] the stress and uncertainty of dealing with [an] accident," and Craig Swapp's testimony, in which he acknowledged that "one of the Defendants' jobs is to minimize [] stress, to take care of the problems, to take care of the difficulties of the case, to manage the case and get everything done so the client doesn't have to stress about that." This was error. As Cabaness mandates, the district court should have analyzed whether the nature and language of the contract plainly show that non-economic damages were explicitly contemplated by the parties at the time the contract was formed. Had it done so, the court would have concluded that nothing in the contract suggests non-economic damages were contemplated here.

         ¶33 First, nothing in the "nature" of the contract signals that emotional distress damages were a foreseeable result of a breach. The Restatement (Second) of Contracts states that "[r]ecovery for emotional disturbance will be excluded unless . . . the breach is of such a kind that serious emotional disturbance was a particularly likely result."[36] Most courts that have found emotional distress damages are a foreseeable result of a breach in legal malpractice cases have done so because the character or purpose of the contract involved some "peculiarly personal subject matter[]"[37]-like wrongful conviction, [38] custody of a child, [39] or mental health determinations.[40] As the Eleventh Circuit has explained:

[I]n the ordinary commercial contract, damages are not recoverable for disappointment, even amounting to alleged anguish, because of breach. Such damages are . . . too remote. But these are contracts entered into for the accomplishment of a commercial purpose. Pecuniary interests are paramount . . . . [I]t has long been settled that recovery therefor was not contemplated by the parties as the natural and probable result of the breach. Yet not all contracts are purely commercial in their nature. Some involve rights we cherish, dignities we respect, emotions ...

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