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Taylor v. Bell

Court of Appeals of Washington, Division 1

December 29, 2014

Reed Taylor, Appellant ,
v.
Scott Bell et al., Respondents

Reconsideration denied February 9, 2015.

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[Copyrighted Material Omitted]

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Superior Court County: King. Superior Court Cause No: 12-2-10803-0 SEA. Superior Court Judge Signing: Dean S. Lum. Date filed in Superior Court: April 15, 2013.

Roderick C. Bond (of Roderick Bond Law Office PLLC ); and Sidney C. Tribe and Philip A. Talmadge (of Talmadge/Fitzpatrick ), for appellant.

Gregory J. Hollon and Avi J. Lipman (of McNaul Ebel Nawrot & Helgren PLLC ), for respondents.

Concurred by: Verellen, A.C.J.; Schindler, J.

OPINION

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[185 Wn.App. 273] Dwyer, J.

[¶1] Before the doctrine of judicial estoppel may be applied, a party's initial position--which is subsequently contradicted in a different proceeding--must be accepted by the court to which it is presented. In a proceeding prior to the matter before us on appeal, appellant Reed Taylor's initial position was rejected by the court to which it was presented. Nevertheless, in this matter, the King County Superior Court applied judicial estoppel, found insufficient evidence of proximate causation, and granted summary judgment in favor of the respondents. Given that Taylor[1] did not successfully maintain his position in the [185 Wn.App. 274] prior proceeding and because sufficient evidence of proximate causation was presented with regard to Taylor's claims of legal malpractice and breach of fiduciary duty, we reverse the trial court's grant of summary judgment as to those claims and remand for further proceedings.

I

[¶2] Reed Taylor was the founder and chief executive officer of AIA Services Corporation, an Idaho corporation. In 1995, Taylor was also the majority shareholder. At that time, certain shareholders solicited Taylor to sell his majority stake back to AIA through a stock repurchase. At the time, both he and AIA were represented by various lawyers from the Idaho law firm of Eberle Berlin Kading Turnbow & McKlveen. Eberle had an extensive history of representing Taylor and AIA.[2]

[¶3] On March 7, 1995, AIA held a board and shareholder meeting to discuss the plan to repurchase Taylor's shares. At this meeting, the shareholders authorized the repurchase of Taylor's shares. However, the shareholders did not authorize the use of capital surplus to repurchase Taylor's shares. During the same meeting, the board of directors advised Taylor to obtain independent legal counsel.

[¶4] Taylor was referred to Cairncross & Hempelmann--a Seattle law firm. Attorneys from Cairncross[3] began representing Taylor in March of 1995. The firm did not have an office in Idaho, and the attorneys representing Taylor were not licensed to practice law in Idaho. The fee agreement indicated that Cairncross would represent Taylor " in the matter of the sale of his stock in AIA."

[¶5] Cairncross negotiated and drafted the stock redemption agreement and ancillary agreements. During this period [185 Wn.App. 275] of time, Cairncross attorney Frank Taylor wrote the following to a colleague: " What about: (1) The issue of their authority to enter into the Stock Redemption Agreement--Riley's proposal says Co.'s authority to do this and to close & consummate the transaction is dependent upon ... SH approval ... ." When Cairncross billed Taylor for the work that it had done in connection with the stock redemption agreement, its billing records included the following descriptions: " Analysis re need for shareholder meeting" and " Analysis re corporate authority issues."

[¶6] As part of the deal brokered by Cairncross, AIA was required to deliver certain documents to Cairncross at closing. Additionally, Eberle was obligated to deliver to Taylor a third party closing opinion letter. This opinion letter, the content of which was negotiated by Cairncross and Eberle, was addressed to Taylor and stated that only he could rely on it. The letter provided, in pertinent part, that " the consummation of the transactions contemplated thereby, will" not " (c) to the best of our knowledge, violate

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any law ... of any jurisdiction to which [AIA is] subject."

[¶7] The final terms of the agreement provided that AIA would redeem all of Taylor's AIA shares in exchange for (1) a down payment of $1,500,000, (2) a $6 million promissory note, with interest-only payments for 10 years and the principal due in a balloon payment in the final year, (3) forgiveness of certain debt owed by Taylor and related entities to AIA, and (4) transfer of title of several airplanes to Taylor.

[¶8] Within the following year, AIA defaulted on its obligations pursuant to the agreement. Cairncross represented Taylor in restructuring the obligations. After the restructure, Cairncross ceased to represent Taylor.

Taylor Sues AIA in Idaho

[¶9] In 2007, AIA again failed to meet its obligations to Taylor. In response, Taylor sued AIA, including certain officers and directors, in Idaho state court.

[185 Wn.App. 276] [¶10] In 2008, certain defendants moved for partial summary judgment, arguing that the stock redemption agreement violated an Idaho statute that had been in effect at the time that the stock redemption transaction closed--former Idaho Code Ann. § 30-1-6 (1995).[4] That statute, which has since been repealed, authorized corporations to purchase their own shares but instituted restrictions on the source of funds that could be used for that purpose.

[¶11] On June 17, 2009, the Idaho trial court ruled that the redemption agreement had been in violation of former Idaho Code Ann. § 30-1-6 and, thus, was unenforceable. Specifically, the court held that because AIA had not had earned surplus at the time of the redemption agreement and because it had not been authorized by either its governing documents or by a majority shareholder vote to use capital surplus in order to fund the redemption, the redemption agreement was in violation of former Idaho Code Ann. § 30-1-6. In so ruling, the Idaho trial court noted that Taylor " was represented by counsel" and that " [t]here is no question that all parties, including [Taylor], either ignored or failed to consider [Idaho Code Ann.] § 30-1-6."

[¶12] The Idaho Supreme Court affirmed the trial court's decision. Taylor v. AIA Servs. Corp., 151 Idaho 552, 261 P.3d 829 (2011).

Taylor Sues Eberle in Idaho

[¶13] In October 2009, following the adverse ruling by the trial court in his lawsuit against AIA, Taylor filed suit against Eberle in Idaho state court. He pleaded claims of [185 Wn.App. 277] negligent misrepresentation, fraud, breach of fiduciary duty, legal malpractice, and violation of the Idaho Consumer Protection Act.[5]

[¶14] Eberle moved for summary judgment. Therein, it maintained that because it had not had an attorney-client relationship with Taylor, it had owed him no duty of care.

[¶15] Taylor opposed Eberle's motion. In the course of so doing, he testified that he had relied on Eberle to provide the legal representation that was necessary for his shares to be properly redeemed.

I relied upon [Eberle] to provide the legal representation necessary to legally and properly complete the redemption of my shares for me and AIA Services. Neither I nor AIA Services had any other attorneys retained for the purpose of providing the legal representation to ensure the redemption of my shares had all necessary consents and did not violate any laws.

[¶16] On May 7, 2010, the Idaho trial court ruled that, although Eberle owed Taylor a duty in connection with the drafting and issuance of the opinion letter, its duty did not

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arise as a result of an attorney-client relationship. Consequently, those of Taylor's claims that were predicated on the existence of an attorney-client relationship with Eberle were dismissed. However, the rest of his claims were allowed to proceed. Eberle's motion for reconsideration was denied, and it appealed to the Idaho Supreme Court.

[¶17] In August 2014, the Idaho Supreme Court affirmed. In upholding the trial court's ruling that Taylor was owed a duty by Eberle as a nonclient, the Idaho Supreme Court identified that which was the target of Taylor's claim: " Mr. Taylor's cause of action is not to recover damages based upon the stock redemption agreement. It is to recover damages based upon the issuance of the opinion letter that failed to mention that the transaction did not comply with Idaho Code section 30-1-6." Taylor v. Riley, 157 Idaho 323, 336 P.3d 256, 262 (2014).

[185 Wn.App. 278]Taylor Sues Cairncross in Washington

[¶18] In March 2012, Taylor filed suit against Cairncross in King County Superior Court. His claims included legal malpractice, breach of fiduciary duty, and violation of the Washington Consumer Protection Act (CPA).[6]

[¶19] In February 2013, Cairncross moved for summary judgment.[7] Therein, Cairncross argued, inter alia, that the doctrine of judicial estoppel precluded Taylor from maintaining his claims, that Taylor had failed to carry his burden on the element of proximate causation, and that Cairncross and Taylor had limited the scope of Cairncross's representation to exclude matters relating to AIA's authority and the enforceability of the transaction under Idaho law.

[¶20] Taylor opposed the motion and filed a cross motion for partial summary judgment. Therewith, by declaration, Taylor submitted expert testimony from Professor Richard McDermott.

[¶21] Subsequently, the trial court orally granted Cairncross's motion for summary judgment, denied Taylor's cross motion, and--thereafter--memorialized its ruling in a written order.[8] In dismissing Taylor's claims for malpractice, breach of fiduciary duty, and violations of the CPA, the trial court held that (1) judicial estoppel barred Taylor's claims of malpractice and breach of fiduciary duty, (2) Taylor had [185 Wn.App. 279] offered no admissible evidence to show proximate causation as to his claims for malpractice and breach of fiduciary duty, and (3) Taylor's CPA claim failed as a matter of law.

[¶22] Regarding judicial estoppel, the trial court found that Taylor had taken inconsistent positions in Idaho and in Washington.

Basically, what the plaintiff did in Idaho is he pointed the finger at [Eberle] and said: These are the Idaho lawyers who were representing me. I mean, he didn't say they were representing some third party ..., he said, " They were representing me," and that no other lawyer, specifically [Cairncross] -- no other lawyer was involved. In other words, no other lawyer had a duty. This was done in Idaho so that he could pursue liability against those Idaho lawyers.
Now he says, " No, that's not true, I didn't mean that, and Cairncross were the other lawyers." It is a direct and irreconcilable conflict stated under oath, inconsistent with the course of dealing and all the ...

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