Appeal from SUPERIOR COURT YAKIMA COUNTY. Superior Court No: 92-2-00315-4. Date filed in Superior Court: 1/14/94. Superior Court Judge signing: HEATHER VAN NUYS.
Author: Dennis J. Sweeney, Concurring: Philip J. Thompson & John A. Schultheis
SWEENEY, C.J.--Under current Washington law, if a plaintiff exercises independent business judgment and elects not to pursue an available legal remedy, the defendant's wrongful act cannot be the proximate cause of the plaintiff's damages. Horn v. Moberg, 68 Wash. App. 551, 558, 844 P.2d 452, review denied, 121 Wash. 2d 1025, 854 P.2d 1085 (1993). The law firm of Hart & Winfree did not retain a security interest in the general intangibles for Gordon M. Flint when it represented him during the sale of his funeral home business to Michael and Vicki Meyer. The Meyers defaulted and later filed bankruptcy. Mr. Flint settled his claim with the Meyers and sued Hart & Winfree for legal malpractice. A jury returned a verdict in his favor. Hart & Winfree appeals. It contends that its negligence was not the proximate cause of Mr. Flint's damages because he exercised his independent business judgment when he settled his claim with the Meyers. Hart & Winfree further asserts the verdict is not supported by substantial evidence and that the court erred in awarding Mr. Flint attorney fees and prejudgment interest.
We take this opportunity to reexamine the independent business judgment rule. We conclude Mr. Flint's settlement of his claim with the Meyers does not bar his
subsequent negligence action against Hart & Winfree. We affirm the directed verdict on the issue of liability. Because we hold the court erred in instructing the jury on the calculation of damages, we reverse the jury award and remand for a new trial on the question of damages.
FACTS AND PROCEDURAL POSTURE
In 1985, after more than 30 years in the funeral business, Mr. Flint decided to sell the Flint Funeral Home in Prosser to the Meyers. They agreed on a price of $285,000, payable at 11 percent interest. Mr. Flint retained Hart & Winfree to prepare the sale documents. The sale closed in October of 1985.
In 1986, the Meyers' payments became irregular. Mr. Flint did not take any action and the Meyers made up the delinquent payments. In 1989, the Meyers defaulted. They asked Mr. Flint to reduce the balance owing to $100,000 and to suspend payments for one year. Mr. Flint rejected the proposal and sued to foreclose.
On December 21, the Meyers petitioned for chapter 13 bankruptcy protection. Mr. Flint hired an attorney to assist in the bankruptcy. Mr. Flint filed a creditor's claim for $273,865.23. He soon learned, for the first time, that he did not have a security interest in the general intangibles of the business. He moved to have the automatic stay of the bankruptcy lifted so he could proceed with the foreclosure action. The bankruptcy judge denied the motion. Mr. Flint also moved to dismiss the bankruptcy alleging the Meyers' unsecured debt exceeded the statutory limits for chapter 13.*fn1 The Meyers challenged the valuation of Mr. Flint's claim.
In August of 1990, the bankruptcy judge ruled that Mr. Flint did not have a security interest in the goodwill of
the business nor in its customer lists, accounts receivable or business name. Before the judge ruled on the value of the secured assets, Mr. Flint and the Meyers entered into a settlement agreement which reduced Mr. Flint's claim to $170,000, payable at 7.8 percent interest. The claim was secured by the ongoing funeral business. The settlement was approved by the bankruptcy court on September 23, 1991.
On February 28, 1992, Mr. Flint sued Hart & Winfree alleging it failed to retain a security interest in the general intangibles of the business at the time of sale. The case was tried to a jury. Mr. Flint argued that his damages were $121,919--the difference between the initial sale in 1985 ($285,000) and the 1991 settlement agreement ($170,000) plus interest. He presented the testimony of a real estate broker who valued the funeral home at $290,000 as of July 30, 1990. This included real estate valued at $182,500 and a "business market value" of $110,000 to $137,500. The market value figure included personal property, cars, caskets, pre-needs (prearranged funerals), a covenant-not-to-compete agreement, as well as the goodwill of the business. The broker did not value the intangible assets separately. Hart & Winfree's certified public accountant valued the funeral home at $150,000.
After both sides rested, Mr. Flint moved for a directed verdict on the issue of liability. The court granted the motion. By special verdict, the jury found that Hart & Winfree's negligence was the proximate cause of damages to Mr. Flint. It calculated Mr. Flint's damages as follows:
$26,177.04 legal and related expenses associated with the bankruptcy
$121,919.00 value of the security interest lost after September 23,
$450.00 attorney fees Mr. Flint paid to Hart & Winfree for the
$62,707.88 value of the security interest lost in the past, together
with all interest lost from the time of the default up to
The jury found that Mr. Flint was 24.5 percent comparatively negligent. Hart & Winfree moved for reconsideration, vacation of the verdict or, in the alternative, amendment of the verdict. The court denied the motion. This appeal follows.
Independent Business Judgment. We first address the question of whether Hart & Winfree's failure to retain a security interest in the intangibles was the proximate cause of Mr. Flint's damages. Relying on Horn v. Moberg, 68 Wash. App. 551, 557, 844 P.2d 452, review denied, 121 Wash. 2d 1025, 854 P.2d 1085 (1993), the law firm contends the cause of Mr. Flint's damages was his decision to settle the adversary bankruptcy proceeding. Hart & Winfree's position is that Mr. Flint's ...