Pipino v. Norman , 101 N.E.3d 597 ( 2017 )

[Cite as Pipino v. Norman, 2017-Ohio-9048.]
STATE OF OHIO, MAHONING COUNTY
IN THE COURT OF APPEALS
SEVENTH DISTRICT
SAMUEL D. PIPINO ET AL., ) CASE NO. 16 MA 0153
)
PLAINTIFFS-APPELLEES/ )
CROSS-APPELLANTS, )
)
VS. ) OPINION
)
FORREST NORMAN ET AL., )
DEFENDANTS-APPELLANTS/ )
CROSS-APPELLEES. )
CHARACTER OF PROCEEDINGS: Civil Appeal from the Court of Common
Pleas of Mahoning County, Ohio
Case No. 13 CV 3187
JUDGMENT: Affirmed in part; Reversed in part;
Remanded.
JUDGES:
Hon. Carol Ann Robb
Hon. Gene Donofrio
Hon. Cheryl L. Waite
Dated: December 12, 2017
[Cite as Pipino v. Norman, 2017-Ohio-9048.]
APPEARANCES:
For Plaintiffs-Appellees/Cross Appellants: Atty. Mark A. Hanni
Atty. Jason Small
829 Southwestern Run
Youngstown, Ohio 44514
For Defendants-Appellants/Cross Appellees: Atty. Stephen E. Walters
Atty. James O'Connor
Atty. Brian D. Sullivan
Reminger Co., L.P.A.
101 West Prospect Avenue, Suite
1400
Cleveland, Ohio 44115
Atty. Thomas E. Dover
Atty.Melanie R. Irvin
Atty. Colleen Mountcastle
Gallagher Sharp, LLP
1501 Euclid Avenue
Bulkley Building, Sixth Floor
Cleveland, Ohio 44115
[Cite as Pipino v. Norman, 2017-Ohio-9048.]
ROBB, P.J.
{¶1} This case presents an appeal and a purported cross-appeal. Gallagher
Sharp (the law firm) appeals the decision of the Mahoning County Common Pleas
Court granting summary judgment to Samuel D. Pipino et al. (the clients) on the law
firm’s quantum meruit counterclaim. The trial court held the quantum meruit claim
was not sustainable as the parties’ agreement set forth the fees. The law firm points
to a Supreme Court precedent stating termination of the attorney-client relationship
and the accompanying contingency agreement does not preclude the attorney from
recovering the reasonable value of services rendered prior to discharge, whether the
termination was with or without just cause. The law firm states the claim for recovery
of fees is not on the prior contract and the terms of a “stipulation” allegedly attached
to the contract were in dispute. We conclude the clients were not entitled to
judgment as a matter of law on the quantum meruit counterclaim. Accordingly, the
entry of summary judgment for the clients on the law firm’s counterclaim is reversed,
and the counterclaim is remanded for further proceedings.
{¶2} The clients appeal the trial court’s grant of summary judgment to the
law firm and Attorney Forrest A. Norman on the clients’ legal malpractice claim. The
trial court held the clients’ settlement in the underlying case after termination of the
attorney-client relationship was fatal to the malpractice claim. The court also found a
waiver principle applicable due to the settlement. The clients contend the attorney’s
negligence diminished the value of their underlying case or at least caused damages
from loss of use of the money during the delay. The issue is whether there was any
evidence the attorney’s negligence proximately caused damages after taking into
consideration a settlement was entered in the underlying case after the attorney was
terminated. For the reasons explained infra, we hereby uphold the grant of summary
judgment entered against the clients on their legal malpractice claim.
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STATEMENT OF THE CASE
{¶3} The clients filed a complaint alleging legal malpractice against Attorney
Norman and the law firm where he was employed. A counterclaim was filed seeking
recovery of attorneys’ fees under the doctrine of quantum meruit. The underlying
case involved the clients’ dissatisfaction with investments made by First Merit Bank in
the clients’ trust portfolios from 2007 through 2009. The clients instructed the bank to
make safe and conservative investments. The bank suggested exchange-traded
funds (ETFs); the clients consented while reiterating their instructions as to safe and
conservative investments. The bank invested in ETFs; at least one of the ETFs was
comprised of derivatives (was leveraged) rather than merely stocks. When the $2
million beginning balance incurred $1.29 million in losses, the clients instructed the
bank to sell the investments.
{¶4} In 2010, the clients hired Attorney Norman of Gallagher Sharp to
represent them in a breach of fiduciary duty suit against the bank and certain bank
employees. Attorney Apelis, a partner at Gallagher Sharp, assisted Attorney
Norman. The agreed compensation was a one-third contingency fee plus expenses.
Attorney Norman filed a complaint on behalf of the clients against the bank and the
bank’s employees, resulting in Pipino v. Onuska, Mah. Cty. C.P. No. 10CV3548. The
case was voluntarily dismissed on April 4, 2012, after the trial court refused to extend
a previously-extended discovery deadline. Private mediation with the bank
proceeded in November 2012, after which the bank filed a declaratory judgment
action against the clients in Cuyahoga County. The clients filed a counterclaim. The
clients also attempted to refile the Mahoning County lawsuit against the bank, but the
court dismissed this action due to the pending Cuyahoga County case.
{¶5} The clients say they terminated Attorney Norman on March 26, 2013
and used other attorneys at the law firm; the law firm states other attorneys at the law
firm took over the case when Attorney Norman left the firm. The clients terminated
the law firm’s representation in July 2013 and hired a new attorney. On September
18, 2013, the clients settled the case against the bank, and the Cuyahoga County
suit was dismissed.
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{¶6} In November 2013, the clients filed the within legal malpractice action
against Attorney Norman and Gallagher Sharp (for vicarious liability). The complaint
claimed Attorney Norman committed legal malpractice by: failing to complete
discovery, interview an expert witness, and prepare for trial in the Mahoning County
action against the bank, all necessitating voluntary dismissal; disobeying the clients’
instruction to immediately refile the suit in Mahoning County, while assuring the
clients venue would not be lost; and agreeing to schedule mediation with the bank
instead of immediately refiling the suit without first consulting with the clients.
Regarding the Cuyahoga County suit, the clients complained Attorney Norman failed
to engage in discovery and scheduled their depositions in contravention of their
instructions that they not be deposed until the bank provided discovery.
{¶7} The quantum meruit counterclaim filed by Attorney Norman and the law
firm asked for the reasonable value of legal services and advanced expenses. The
counterclaim pointed out: the action against the bank was filed in 2010; the bank’s
efforts to remove the suit to federal court were successfully opposed; upon remand to
state court, there was extensive discovery conducted; interrogatories and requests
for production were served on the bank; responses were submitted to the bank’s
interrogatories, requests for production, and requests for admissions; experts were
engaged; numerous court appearances were made; motions to compel discovery
were filed and defended; the clients elected to voluntarily dismiss due to an impasse
in discovery; and mediation lasted for several hours, after which the clients rejected a
settlement offer. After the Cuyahoga County action was filed, the action was
defended, a counterclaim was filed, discovery was conducted (with multiple
depositions), and a motion to compel discovery was filed on behalf of the clients.
{¶8} On April 20, 2015, Attorney Norman and the law firm filed a motion for
summary judgment on the clients’ legal malpractice claim. They asserted: the
alleged discovery omissions in the original action that was voluntarily dismissed did
not harm the case against the bank; instead of completing discovery in the second
action and taking the case to trial, the clients settled with the bank; the clients waived
their malpractice claim by settling the underlying case, citing the Eighth District’s
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Sawchyn v. Westerhaus case; loss of venue in one county is not a basis for
malpractice; proximate cause was lacking as there was no showing the alleged
negligence caused a loss since nothing prohibited the clients from taking their case
against the bank to trial; and the underlying case required expert testimony on the
standard of care for a financial professional, but the clients failed to provide an expert
report by the deadline in order to prove their “case within a case.”
{¶9} An affidavit was provided to confirm the clients failed to provide an
expert report on the bank’s breach of fiduciary duty in the underlying case. In
addition, the affidavit of Attorney Apelis attested: extensive discovery was conducted
in both cases; a financial expert was retained in both cases; Attorney Norman left the
firm on March 26, 2013; the court in Cuyahoga County ordered the clients to submit
to deposition over objection after non-party depositions had been taken; and no
discovery deadlines were set in the Cuyahoga County case at the time the law firm
was terminated. The motion also pointed to Mr. Pipino’s deposition testimony where
he vaguely stated he lost three years and his case was hurt by not getting discovery.
{¶10} On May 5, 2015, the clients responded to the motion for summary
judgment as to their legal malpractice claim. A reply in support of the motion for
summary judgment was filed on July 1, 2015. The clients then received leave to file
a cross-motion for summary judgment on the quantum meruit counterclaim filed
against them.
{¶11} On August 18, 2015, the clients filed a motion for summary judgment on
the counterclaim, arguing the existence of the express contract nullified the quasi-
contractual quantum meruit claim. They cited to Mr. Pipino’s deposition at page 51,
where he said he told Attorney Norman when he hired him that he would not agree to
a settlement unless they recovered all of their losses (as he would rather take the
case to trial); he said Attorney Norman advised he would have to check with the law
firm’s partners and called him later to say he received their approval. The clients
suggested a quasi-contractual quantum meruit claim would have been nullified by a
written agreement, noting an attorney is to have the client sign a written contingency
fee agreement pursuant to Rule of Professional Conduct 1.5. The clients
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alternatively argued the elements of a quantum meruit claim could not be established
because there was no benefit conferred and the equities do not favor recovery for
services rendered due to the malpractice committed.
{¶12} The September 1, 2015 response to the motion for summary judgment
on the counterclaim cited to the Supreme Court’s Fox and Reid cases, which held
attorneys’ fees can be recovered through quantum meruit where a contractual
relationship (whether express or implied) was terminated (whether with or without just
cause). The law firm and attorney argued the disputed terms of a contingency fee
agreement are irrelevant after the relationship is prematurely terminated. They also
stated the quality of work is a distinct issue which could relate to the reasonable
value of services rendered but which would not bar the quantum meruit action. They
set forth itemized evidence of 1,061.4 hours of work with hourly rates for each item,
totaling $143,714, plus $20,706.63 in expenses.
{¶13} More than one year later, on September 12, 2016, the trial court
granted both summary judgment motions in separate entries, resulting in the disposal
of the entire case. Both entries stated there was no just reason for delay. See Civ.R.
54(B).
{¶14} In granting the clients’ motion for summary judgment on the
counterclaim, the court held: “the agreement between Plaintiff and Defendants set
forth their agreement with respect to fees. As such, no quantum meruit claim is
sustainable.” The law firm filed a timely notice of appeal from this entry on October
11, 2016.
{¶15} In separately granting the motion for summary judgment filed by the
attorney and the law firm on the clients’ legal malpractice claim, the court held: “the
acceptance of the settlement agreement by Plaintiff, which included a release
provision, is fatal to the present claims submitted by Plaintiff. Moreover, the 8th
District Court holding in Westerhaus, is applicable to the facts in the case at bar.”
The clients filed what they termed a notice of cross-appeal from this entry on October
17, 2016.
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Preliminary Issue as to Notice of Cross-Appeal
{¶16} App.R. 3(C)(1) provides: “Cross Appeal Required. A person who
intends to defend a judgment or order against an appeal taken by an appellant and
who also seeks to change the judgment or order or, in the event the judgment or
order may be reversed or modified, an interlocutory ruling merged into the judgment
or order, shall file a notice of cross appeal within the time allowed by App.R. 4.”
Compare App.R. 3(C)(2) (“Cross Appeal and Cross-Assignment of Error Not
Required. A person who intends to defend a judgment or order appealed by an
appellant on a ground other than that relied on by the trial court but who does not
seek to change the judgment or order is not required to file a notice of cross appeal
or to raise a cross-assignment of error.”).
{¶17} Here, the clients’ appeal of the entry of summary judgment on their
legal malpractice claim is not the defense of the judgment appealed by the law firm;
they are not seeking to change the judgment appealed by the law firm or seeking to
change an interlocutory order that merged with the final judgment in the event the
final judgment (appealed by the law firm) is reversed. Rather, they are appealing a
different final judgment in the case. Accordingly, the clients should have filed a
separate notice of appeal, which would have been assigned its own case number,
rather than a notice of cross-appeal.
{¶18} This situation is similar to the situation in this court’s Estate of
Pizzoferrato case, where the trial court issued two judgment entries on the same day.
One entry overruled party A’s exception to a final account; party A filed a notice of
appeal from this entry. The other entry granted judgment for party B in his
concealment action; party B filed a notice of cross-appeal from this separate entry (as
he contested the amount of his recovery). We stated: “As a preliminary matter, it
must be noted that [party B] should have filed a separate appeal in this matter and
not a notice of cross-appeal. His claims do not fall within the purview of a true cross-
appeal, since he is appealing an issue arising from a judgment entry wholly separate
and distinct from the entry referred to in appellant's notice of appeal.” In re Estate of
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Pizzoferrato, 190 Ohio App.3d 123, 2010-Ohio-4848, 940 N.E.2d 1018, ¶ 14 (7th
Dist.). We then exercised our discretion to proceed in spite of this issue.
{¶19} We explained this was permissible because the mistitled notice of
cross-appeal was filed within the time for filing a direct appeal under App.R. 4(A),
implying the extra time provided for multiple appeals or cross-appeals was not
available in the appeal from two separate final entries. Id. at ¶ 15. Notably, App.R.
4(B)(1) applies to qualifying multiple appeals as well as cross-appeals. Specifically,
the rule provides: “Multiple or Cross Appeals. If a notice of appeal is timely filed by a
party, another party may file a notice of appeal within the appeal time period
otherwise prescribed by this rule or within ten days of the filing of the first notice of
appeal.” App.R. 4(B)(1).
{¶20} This division requires reference to the time requirements in App.R. 4(A).
For instance, “a party who wishes to appeal from an order that is final upon its entry
shall file the notice of appeal required by App.R. 3 within 30 days of that entry.”
App.R. 4(A)(1). See also App.R. 4(A)(2) (“a party who wishes to appeal from an
order that is not final upon its entry but subsequently becomes final--such as an order
that merges into a final order entered by the clerk or that becomes final upon
dismissal of the action--shall file the notice of appeal required by App.R. 3 within 30
days of the date on which the order becomes final.”).
{¶21} Construing the Pizzoferrato holding and reading App.R. 4(B)(1) in
conjunction with App.R. 4(A), it would appear the ten-day alternative in App.R.
4(B)(1) cannot be used to extend the time for filing a second notice of appeal in the
same lower court case where the second notice of appeal is filed from a separate
final judgment entered in the case. In other words, the multiple appeals referred to in
App.R. 4(B)(1) are multiple appeals from the same final judgment (or appeals from
orders that became final due to the same final judgment) not multiple appeals from
separate final entries in the same case. Although the clients’ notice of appeal at first
glance appears to have relied on the ten-day alternative, there is an issue with the
court’s judgment and the clerk’s docket which would make the clients’ appeal timely
as a direct appeal from the final judgment.
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{¶22} That is, the notice of cross-appeal was filed within the time for filing an
original appeal because the trial court’s judgment entry failed to instruct the clerk to
serve the parties and the clerk never noted service in the docket. “When the court
signs a judgment, the court shall endorse thereon a direction to the clerk to serve
upon all parties not in default for failure to appear notice of the judgment and its date
of entry upon the journal.” Civ.R. 58(B). “Within three days of entering the judgment
upon the journal, the clerk shall serve the parties in a manner prescribed by Civ.R.
5(B) and note the service in the appearance docket.” Id. “In a civil case, if the clerk
has not completed service of the order within the three-day period prescribed in
Civ.R. 58(B), the 30-day periods referenced in App.R. 4(A)(1) and 4(A)(2) begin to
run on the date when the clerk actually completes service.” App.R. 4(A)(3).
Consequently, as was the case in Pizzoferrato, the clients’ appeal was filed within the
time for filing an original appeal from the judgment being appealed, without resort to
the ten-day alternative in App.R. 4(B)(1).
{¶23} In sum, this court will exercise our discretion to proceed with the case in
its current state, as we did in Pizzoferrato. We are effectively sua sponte amending
the clients’ notice of cross-appeal into a notice of appeal by eliminating the word
“cross” from the title of the notice.
SUMMARY JUDGMENT
{¶24} Summary judgment can be granted when there remains no genuine
issue of material fact and reasonable minds can only conclude the moving party is
entitled to judgment as a matter of law. Civ.R. 56(C). The movant has the initial
burden to show there is no genuine issue of material fact. Byrd v. Smith, 110 Ohio
St.3d 24, 2006-Ohio-3455, 850 N.E.2d 47, ¶ 10, citing Dresher v. Burt, 75 Ohio St.3d
280, 294, 662 N.E.2d 264 (1996). The non-moving party then has a reciprocal
burden. Id. The non-movant's response, by affidavit or as otherwise provided in
Civ.R. 56, must set forth specific facts showing there is a genuine issue for trial and
may not rest upon mere allegations or denials in the pleadings. Civ.R. 56(E).
{¶25} The court is to consider the evidence and all reasonable inferences to
be drawn from the evidence in the light most favorable to the non-movant. See, e.g.,
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Jackson v. Columbus, 117 Ohio St.3d 328, 2008-Ohio-1041, 883 N.E.2d 1060, ¶ 11.
Any doubts are to be resolved for the non-movant. Leibreich v. A.J. Refrig., Inc., 67
Ohio St.3d 266, 269, 617 N.E.2d 1068 (1993). A trial court “may not weigh the proof
or choose among reasonable inferences.” Dupler v. Mansfield Journal Co., 64 Ohio
St.2d 116, 121, 413 N.E.2d 1187 (1980). Still, “[t]he material issues of each case are
identified by substantive law.” Byrd, 110 Ohio St.3d 24 at ¶ 12. “Only disputes over
facts that might affect the outcome of the suit under the governing law will properly
preclude the entry of summary judgment.” Id., quoting Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
{¶26} Civ.R. 56 must be construed in a manner that balances the right of the
non-movant to have a jury try claims that are adequately based in fact with the right
of the movant to demonstrate, prior to trial, that the claims have no factual basis.
Byrd, 110 Ohio St.3d 24 at ¶ 11, citing Celotex Corp. v. Catrett, 477 U.S. 317, 327,
106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). We consider the propriety of granting
summary judgment de novo. Comer v. Risko, 106 Ohio St.3d 185, 2005-Ohio-4559,
833 N.E.2d 712, ¶ 8. Under a de novo standard of review, we review the case
independently and give no deference to the trial court’s decision. See, e.g., Diley
Ridge Med. Ctr. v. Fairfield Cty. Bd. of Revision, 141 Ohio St.3d 149, 2014-Ohio-
5030, 22 N.E.3d 1072, ¶ 10; Hines v. State Farm Ins. Co., 146 Ohio App.3d 128,
131, 765 N.E.2d 414 (7th Dist.2001).
COUNTERCLAIM: QUANTUM MERUIT
{¶27} The law firm sets forth the following assignment of error:
“The trial court erred in granting Appellees Samuel D. Pipino’s and Lorraine
Pipino’s Motion for Summary Judgment.”
{¶28} The Ohio Supreme Court adopted a new rule in the 1989 Fox case:
“When an attorney is discharged by a client with or without just cause, and whether
the contract between the attorney and client is express or implied, the attorney is
entitled to recover the reasonable value of services rendered the client prior to
discharge on the basis of quantum meruit.” Fox & Associates Co., L.P.A. v. Purdon,
44 Ohio St.3d 69, 541 N.E.2d 448 (1989), syllabus. The Fox decision overruled prior
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precedent which stated that when an express contingency fee contract is breached
by a client without just cause, the measure of damages is the full contract price, not
the reasonable value of services rendered prior to discharge. See, e.g., Roberts v.
Montgomery, 115 Ohio St. 502, 154 N.E. 740 (1926), paragraph two of syllabus;
Scheinesohn v. Lemonek, 84 Ohio St. 424, 95 N.E. 913 (1911). The new rule
balances the right of the client to terminate the attorney, with or without just cause,
with the right of the attorney to be fairly compensated for services rendered. Fox, 44
Ohio St.3d at 71. Quantum meruit can be used whether there is an express contract
for fees (written or oral) or where there is no express contract for fees (i.e., there is
an implied contract). See id. at 72.
{¶29} “One of the central tenets of the Fox approach is that a client has an
absolute right to discharge an attorney or law firm at any time, with or without cause,
subject to the obligation to compensate the attorney or firm for services rendered
prior to the discharge.” Reid, Johnson, Downes, Andrachik & Webster v. Lansberry,
68 Ohio St.3d 570, 574, 629 N.E.2d 431 (1994). “Once discharged, the attorney
must withdraw from the case, and can no longer recover on the contingent-fee-
representation agreement. The discharged attorney may then pursue a recovery on
the basis of quantum meruit for the reasonable value of services rendered up to the
time of discharge.” Id.{¶30} As the Reid case added, when a client terminates an attorney with a
contingency fee agreement, the attorney's cause of action for quantum meruit arises
on the successful occurrence of the contingency, e.g., the discharged attorney can
recover after the client recovers in the underlying case and the attorney is usually not
compensated if the client recovers nothing. Id. at 575-576. In addition, the attorney’s
recovery in quantum meruit is limited by the amount provided in the disavowed
contingency contract. Id. at 576. In determining the reasonable value of services in
a quantum meruit claim, the court is to consider the totality of the circumstances,
including “[t]he number of hours worked by the attorney before the discharge[,] * * *
the recovery sought, the skill demanded, the results obtained, and the attorney-client
relationship itself.” Id. Courts can also consider the factors for determining the
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reasonableness of fees used by the rules governing attorney conduct. Id. at 576-
577.
{¶31} The law firm provided evidence that 1,061.40 hours were dedicated to
the clients’ case against the bank. An affidavit attested the reasonable value of these
services amounted to $143,714 and expenses were advanced for the benefit of the
clients in the amount of $20,706.63. The clients claimed they owed nothing due to
the express contract and the malpractice (which allegedly eliminated any benefit or
inequity). The clients’ reply to the counterclaim admitted there was an express
contract which was not honored, but said the equitable doctrine of quantum meruit
did not apply because: “The express contract between the Pipinos and Gallager
Sharp provided that there would be no legal fees or expenses paid by the Pipinos
unless the Pipinos received all of their losses and had pursued punitive damages.”
{¶32} In moving for summary judgment on the counterclaim, however, the
clients reframed the “stipulation to the contingency fee contract” to be that the clients
would not agree to a settlement unless the law firm was able to recover all of the
money the clients lost and cited only to page 51 of Mr. Pipino’s deposition. The
summary judgment motion urged this express contract vitiated the claim for quantum
meruit. In the alternative, the clients claimed, due to the legal malpractice, there was
no benefit conferred on them or their retention of any benefit would not be
inequitable.
{¶33} In granting the clients summary judgment on the quantum meruit
counterclaim, the trial court concluded: “the agreement between Plaintiff and
Defendants set forth their agreement with respect to fees. As such, no quantum
meruit claim is sustainable.” To the extent the trial court’s holding could be read as
finding there can be no quantum meruit claim due to the mere existence of a
contingency agreement prior to termination, both sides agree the Ohio Supreme
Court’s Fox and Reid cases permit recovery in quantum meruit where an attorney
operating under a contingency fee agreement has been terminated prior to resolution
in the underlying case. In defending the trial court’s judgment, the clients urge the
trial court was not suggesting a rule at odds with Supreme Court precedent but was
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applying the specific terms of the express agreement which purportedly covers this
situation and specifies how the firm must earn any fee. The clients rely on their initial
allegation that a particular term within the express agreement provided “that if
Gallagher Sharp did not recover all of the Pipinos’ losses, Gallagher Sharp could not
be paid.”
{¶34} The law firm states an express contingency agreement does not govern
where the client terminates the relationship and the attorney sues in quantum meruit.
On this point, it should be noted the agreement remains relevant as: the discharged
attorney can recover only after the contingency occurs (the client recovers in the
underlying case); the attorney is not usually compensated if the client recovers
nothing; and the attorney’s recovery in quantum meruit can be limited by the amount
provided in the disavowed contract. Reid, 68 Ohio St.3d at 575-576.
{¶35} In any event, the alleged “stipulation” (of full recovery) to the express
agreement did not govern the occurrences in this case. The clients did not establish
the allegation made in their reply to the counterclaim, which is reasserted in their
appellee’s brief. In these documents, the clients make a more extreme allegation
than they made in their summary judgment motion. The motion pointed only to page
51 of Mr. Pipino’s deposition and fairly construed his deposition testimony. He did
not testify the law firm agreed no fees would be paid unless they recovered all of the
clients’ alleged losses from the bank, and the clients’ motion for summary judgment
did not assert this proposition. Rather, Mr. Pipino testified: “Because when I hired
him, I told him either get all my money back or we’ll go to court. There’s no in
between. His whole agreement was based on that, and I told him that up front. He
said he would have to get approval from his partners. And he called me one or two
days later and said he got it.” (Mr. Pipino Depo. 51). Contrary to the clients’
contention on appeal, Mr. Pipino’s testimony does not express the law firm would
receive no fees if the firm was terminated or if clients did not receive all of their
alleged $1.3 million in losses. The only available construction of the testimony is
that, at the time of retention, the clients had no intention of settling for less and would
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take their chances at trial (where recovery could be less than the amount of loss they
believed was caused by the bank’s breach of fiduciary duty).
{¶36} Even if such testimony could be dispositive if true, it was disputed by
the non-movant. Attorney Apelis (a partner at Gallagher Sharp who assisted
Attorney Norman in the clients’ underlying case involving the bank) attested in an
affidavit attached to the response to the clients’ motion for summary judgment: “I am
personally aware of the nature of the agreement for legal services that the Pipinos
entered into with Gallagher Sharp in connection with the litigation referenced above.
At no time did I, Mr. Norman, or Gallagher Sharp agree to represent the Pipinos with
a stipulation that the Pipinos would accept a settlement no less than the full amount
of the claimed losses in their investment portfolio.” He also opined the law firm would
never agree to undertake representation with such a stipulation. The trial court was
to view this testimony in the light most favorable to the non-movant. The clients were
not entitled to summary judgment where the parties disputed the existence of a
particular, unusual term claimed by the clients/movants to be a part of the
contingency fee agreement (for which no writing was produced).
{¶37} Furthermore, Mr. Pipino’s testimony would not be dispositive even if it
had been undisputed. Coming to an understanding that counsel will take a case to
trial if the defendant will not make a certain settlement offer does not preclude a client
from later agreeing to settle. Initially, it should be pointed out the clients consented to
mediation with the bank after the voluntary dismissal. Mr. Pipino said he attended
mediation to see what the bank would offer after discussing with his attorney that the
offer would not reimburse him for all losses. (Although he wanted his attorney to
refile the voluntarily dismissed case regardless of the scheduled mediation and
although the bank refused to mediate if he refiled first, he could have chosen to refile
and not participate in the private mediation.) More importantly, after terminating
Attorney Norman and Gallagher Sharp and hiring a different attorney, the clients
permitted their new attorney to settle with the bank for less than the total alleged loss
rather than taking their chances with trial.
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{¶38} Even viewing the unsupported assertion about an extreme stipulation
allegedly attached to the contingency fee agreement, a total recovery by counsel was
no longer possible upon termination, just as recovery by counsel in the underlying
suit was no longer possible after termination in the Fox and Reid cases. At that point,
the potential recovery became quantum meruit. In sum, the failure to earn a fee
under a contingency contract due to termination prior to recovery does not preclude
an action in quantum meruit, and the terms of the particular express agreement
alleged by Mr. Pipino’s testimony did not govern the termination of counsel and
subsequent settlement with the bank or otherwise nullify the accrual of the quantum
meruit claim for the recovery of the reasonable value of services rendered. 1
{¶39} The clients alternatively argue they were entitled to summary judgment
on the quantum meruit counterclaim because the law firm could not establish the
benefit or inequity elements of quantum meruit. In supporting this argument, the
clients focus on the alleged malpractice and also suggest the terms in the underlying
agreement (addressed supra) are relevant to any equitable considerations. The law
firm points out it provided evidence on the reasonable value of services rendered,
noting an attorney discharged from a contingency fee agreement may “pursue a
recovery on the basis of quantum meruit for the reasonable value of services
rendered up to the time of discharge.” Reid, 68 Ohio St.3d at 574. According to the
clients’ response, this evidence dealt with the total alleged damage amount but does
not address the actual elements of quantum meruit. See Fox, 44 Ohio St.3d at 70
(adopting “a rule of law providing a discharged attorney quantum meruit as the
measure of damages, regardless of whether there was cause for discharge.”)
{¶40} “Upon discharge or withdrawal, a lawyer may also recover from a client
the reasonable value of the services rendered under the doctrine of quantum meruit,
which literally entitles the lawyer to ‘as much as [is] deserved.’” Columbus Bar Assn.
1 Compare Belovich v. Saghafi, 104 Ohio App.3d 438, 439, 441, 662 N.E.2d 391 (8th Dist.1995)
(where a fee agreement provided any undue delay by the attorney would entitle the client to terminate
the contract with no fees owed, the court found a genuine issue of material fact as to whether there
was undue delay). The contractual term in Belovich specifically dealt with termination, not merely
whether or not counsel recovered for the client, which becomes impossible after termination.
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v. Farmer, 111 Ohio St.3d 137, 2006-Ohio-5342, 855 N.E.2d 462, ¶ 32, quoting
Black's Law Dictionary 1276 (8th Ed.2004) and citing Fox, 44 Ohio St.3d 69 at
syllabus. “Quantum meruit is generally awarded when one party confers some
benefit upon another without receiving just compensation for the reasonable value of
services rendered.” Akron Bar Assn. v. Catanzarite, 119 Ohio St.3d 313, 2008-Ohio-
4063, 893 N.E.2d 835, fn. 1, quoting Aultman Hosp. Assn. v. Community Mut. Ins.
Co., 46 Ohio St.3d 51, 55, 544 N.E.2d 920 (1989) (citing Fox for this proposition).
{¶41} Recovery in quantum meruit is based upon the law of quasi-contract or
implied contract. Legros v. Tarr, 44 Ohio St.3d 1, 7, 540 N.E.2d 257 (1989). “A
quasi-contract is a contract implied so as to prevent injustice. * * * It is a legal fiction
that does not rest upon the intention of the parties, but rather on equitable principles
in order to provide a remedy.” Paugh & Farmer, Inc. v. Menorah Home for Jewish
Aged, 15 Ohio St.3d 44, 46, 472 N.E.2d 704 (1984) (“The two remedies most often
associated with quasi-contracts are restitution and quantum meruit.”) A quasi-
contract claim involves the following elements: (1) a benefit conferred by a plaintiff
upon a defendant; (2) knowledge by the defendant of the benefit; and (3) retention of
the benefit by the defendant under circumstances where it would be unjust to do so
without payment (the unjust enrichment element). See Johnson v. Microsoft Corp.,
106 Ohio St.3d 278, 2005-Ohio-4985, 834 N.E.2d 791, ¶ 20 (restitution as remedy);
Hambleton v. R.G. Barry Corp., 12 Ohio St.3d 179, 183, 465 N.E.2d 1298 (1984)
(quasi-contract claim). The purpose is not to compensate the plaintiff for any loss he
suffered but to compensate him for the benefit he conferred on the defendant.
Johnson, 106 Ohio St.3d 278 at ¶ 21.
{¶42} As aforementioned, the clients posit they received no benefit and/or
their retention of any benefit without payment would not be unjust under the
circumstances of this case involving alleged legal malpractice. In presenting this
argument to defend summary judgment on the quantum meruit counterclaim, the
clients are essentially claiming no reasonable person could find a benefit was
conferred upon them and no reasonable person could find it would be inequitable to
have more than 1,000 hours of legal services performed without compensation.
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{¶43} In Roberts, an attorney sought quantum meruit recovery of fees for
services rendered and the client filed a counterclaim for legal malpractice. The Tenth
District observed, “while there might be a setoff provided [the client] were to prevail
on her counterclaim for malpractice, the question of whether [the attorney] is entitled
to be compensated for the reasonable value of the services he provided is legally and
conceptually separate from the question of whether he committed malpractice.”
Roberts v. Hutton, 152 Ohio App.3d 412, 2003-Ohio-1650, 787 N.E.2d 1267, ¶ 50
(10th Dist.).
{¶44} Quantum meruit can be used by an attorney discharged under a
contingency fee agreement “regardless of whether there was cause for discharge.”
See Fox, 44 Ohio St.3d at 70. As set forth above, the syllabus in Fox provided:
“When an attorney is discharged by a client with or without just cause, and whether
the contract between the attorney and client is express or implied, the attorney is
entitled to recover the reasonable value of services rendered the client prior to
discharge on the basis of quantum meruit.” Id. at syllabus. Consequently, just cause
for the discharge does not automatically eliminate the quantum meruit cause of
action; nor does the lack of an express (whether oral or written) contract.
{¶45} In determining the reasonable value of the services, the totality of the
circumstances are to be considered. Id. at 576-577. The law firm provided summary
judgment evidence supporting the total expenses advanced and the hours worked
with an itemized account containing various rates depending on the service provided.
This is one factor in the totality of the circumstances review to be conducted by the
trier of fact. See id. at 576-577 (“The number of hours worked by the attorney before
the discharge is only one factor to be considered.”). Other factors include the
recovery sought, the skill demanded, the results obtained, the attorney-client
relationship itself, and other guidelines in the rules governing professional conduct for
determining a reasonable fee. Id. at 576-577.
{¶46} “Because the factors to be considered are based on the equities of the
situation, those factors, as well as the ultimate amount of quantum meruit recovery by
a discharged attorney, are matters to be resolved by the trial court within the exercise
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of its discretion.” Id. at 577. “One of the central tenets of the Fox approach is that a
client has an absolute right to discharge an attorney or law firm at any time, with or
without cause, subject to the obligation to compensate the attorney or firm for
services rendered prior to the discharge.” Reid, 68 Ohio St.3d at 574. By the plain
language of such holdings, allegations the attorney was discharged due to
malpractice does not act as an absolute bar to the attorney’s suit in quantum meruit.
A legal malpractice claim can result in a setoff. Moreover, acts of legal malpractice
(and even acts not rising to such level) can be considered in determining the totality
of circumstances in the particular case before the court. For instance, the reasonable
value of services can be diminished by acts which caused a duplication of services.
{¶47} In Redmond, the attorneys sued their clients for fees, the clients
counterclaimed for legal malpractice, and the clients argued their former attorneys
failed to produce evidence that their legal services provided them with a benefit. The
Eighth District explained: “The measure of the benefit provided by the services of the
attorneys in a quantum meruit action such as this is measured by the benefit
provided to the client. * * * Clients who receive monetary settlements after
discharging their attorneys benefit from the services their attorneys performed prior to
discharge. The extent to which they benefitted is left to the discretion of the trial
judge.” Redmond v. Sberna, 8th Dist. No. 68529 (May 23, 1996).
{¶48} In the case at bar, the law firm provided evidence that many hours were
spent on the clients’ case. A reasonable person could find a benefit was conferred
upon the clients. For instance, the clients’ action against the bank was preserved by
the filing of the complaint. Discovery was conducted, even if not completed to the
extent originally contemplated. The affidavit of Attorney Apelis said extensive
discovery was conducted and included thousands of pages of documents. The
clients’ claim was further preserved in the counterclaim asserted within the bank’s
declaratory judgment action after the initial action was voluntarily dismissed without
prejudice. The client settled with the bank within three months of terminating the law
firm’s representation. A reasonable person could find the circumstances suggest it
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would be inequitable to find the law firm is not entitled to compensation for any of its
legal services.
{¶49} For all of these reasons, the law firm’s assignment of error has merit as
the clients were not entitled to judgment as a matter of law on the law firm’s quantum
meruit claim. The trial court’s entry of summary judgment disposing of the
counterclaim is reversed, and the counterclaim is remanded for further proceedings.
LEGAL MALPRACTICE
{¶50} The clients set forth the following assignment of error:
“[T]he trial court erred in granting summary judgment in favor of [Attorney
Norman] and Gallagher Sharp on the Pipinos’ legal malpractice claims against
Norman and Gallagher Sharp.”
{¶51} The elements of a legal malpractice claim are: (1) the attorney owed a
duty or obligation to the plaintiff; (2) there was a breach of that duty or obligation and
the attorney failed to conform to the standard required by law; and (3) there is a
causal connection between the conduct complained of and the resulting damage or
loss. Vahila v. Hall, 77 Ohio St.3d 421, 674 N.E.2d 1164 (1997). The clients’ failure
to prove any one of these elements entitles the attorney to summary judgment.
Woodrow v. Heintschel, 194 Ohio App.3d 391, 2011-Ohio-1840, 956 N.E.2d 855,
¶ 17 (6th Dist.), citing Greene v. Barrett, 102 Ohio App.3d 525, 531-533, 657 N.E.2d
553 (8th Dist.1995) (the client must provide evidence on proximate cause to avoid
summary judgment in a legal malpractice action). Expert testimony on the causation
element is not required in all circumstances, but when there are issues with multiple
attorneys, for instance, courts have required expert testimony to show causation.
See, e.g., Van Sommeren v. Gibson, 6th Dist. No. L-12-1144, 2013-Ohio-2602, 991
N.E.2d 1199, ¶ 32-33, 38 (evaluating the complexity of causation).
{¶52} Initially, the clients focus on the element of breach. The clients
complain counsel voluntarily dismissed their Mahoning County lawsuit against the
bank because he was not prepared to go to trial due to his failure to timely proceed
through the discovery process. Attorney Norman’s answer to an interrogatory
explained an extension was sought due to ongoing discovery disputes and due to the
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preference to pursue additional discovery. The case was voluntarily dismissed on
April 4, 2012, but the scheduled trial date was still six months away. However,
certain documents had not been obtained in discovery, and no expert report was
submitted. The trial court denied counsel’s motion seeking a further discovery
extension, which was not filed until after the previously-extended deadline passed.
Specifically, a June 2, 2011 order provided a December 2, 2011 discovery deadline.
A January 20, 2012 order resolved several discovery issues and extended the
discovery deadline until March 2, 2012. It was not until March 14, 2012 that Attorney
Norman moved for an extension of the discovery deadline.
{¶53} At deposition, Mr. Pipino testified Attorney Norman informed him the
suit had been dismissed by the trial court. Mr. Pipino said he wanted to immediately
refile the suit but Attorney Norman said they should wait until at least July to refile in
order to avoid upsetting the court; counsel thereafter recommended the clients
proceed to mediation instead of immediately refiling, stating he promised the bank’s
counsel he would not refile prior to mediation, which was not scheduled until
November 2012. This cleared the path for the bank to file a declaratory judgment
action in Cuyahoga County the day after mediation. In their appellate brief, the
clients say they sued for legal malpractice based on acts relating to the Mahoning
County lawsuit. (2/17/17 Br. at 8).
{¶54} The clients point to their expert report by Attorney Engler concluding
Attorney Norman breached his duty by violating court orders, failing to inform his
clients of the status of the case, failing to follow up on discovery rulings made by the
court or timely alert the court of discovery disputes, failing to seek the clients’
approval for dismissing the action, and failing to refile the action. The clients
conclude the evidence shows a genuine issue of material fact as to whether counsel
breached the standard of care, urging a reasonable person could find he committed
malpractice.
{¶55} While denying there existed a failure to pursue adequate discovery or
other breach, Attorney Norman and the law firm respond that they do not contest a
genuine issue existed as to breach. They contend summary judgment was proper
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due to the reasons set forth in their summary judgment motion, which revolved
around the element of causation.
{¶56} Although not always, “the requirement of causation often dictates that
the merits of the malpractice action depend upon the merits of the underlying case.”
Vahila, 77 Ohio St.3d at 427-428. In Vahila, the claimed malpractice was a failure to
properly disclose all consequences surrounding various settlements and plea
bargains entered into by the client. Based on the client’s theory in that particular
case, the Court concluded the client arguably sustained damage or loss regardless of
whether he could prove he would have been successful in the underlying matters. Id.
at 427.
{¶57} In a subsequent case, the Court noted the Vahila holding implied there
are some cases where the client must establish he would have succeeded in the
underlying matter. Environmental Network Corp. v. Goodman Weiss Miller, L.L.P.,
119 Ohio St.3d 209, 2008-Ohio-3833, 893 N.E.2d 173, ¶ 17. The Court then
expressly adopted the “case-within-a-case” doctrine, also called the “trial-within-a-trial
doctrine,” which requires the issues that would have been litigated in the previous
action to be litigated between the client and the client's former lawyer, with the client
bearing the burden he would have borne as plaintiff in the original trial. Id. at ¶ 16,
19. “[I]n considering whether the plaintiff has carried that burden, however, the trier
of fact may consider whether the defendant lawyer's misconduct has made it more
difficult for the plaintiff to prove what would have been the result in the original trial.”
Id., quoting Restatement of the Law 3d, Law Governing Lawyers, Section 53, 390,
Comment b (2000).
{¶58} In Environmental Network, the client claimed the attorney’s legal
malpractice resulted in a coerced settlement on the second day of trial and alleged
he would have fared better had the underlying case been tried to conclusion. Id. at
¶ 9. The Court distinguished the case (where the sole theory was that a more
favorable outcome would have occurred) from Vahila (where the client claimed to
have sustained the loss regardless of whether the underlying case had merit). Id. at
¶ 18. “Thus, the theory of this malpractice case places the merits of the underlying
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litigation directly at issue because it stands to reason that in order to prove causation
and damages, appellees must establish that appellant's actions resulted in settling
the case for less than appellees would have received had the matter gone to trial.”
Id.
{¶59} The Supreme Court rejected the trial court’s “some evidence” approach,
stating it “would eviscerate the established rule that a plaintiff must establish by a
preponderance of the evidence that defendant's actions were the proximate cause of
plaintiff's losses.” Id. at ¶ 20. “When a plaintiff is claiming he would have been better
off had the underlying matter been tried rather than settled, the standard for proving
causation requires more than just some evidence of the merits of the underlying suit.”
Id. at ¶ 21. The Court noted, “[i]nstead of objectively evaluating the validity of [the
client’s] claims [in the underlying suit], [the client’s expert] merely assumed them as
fact.” Id. at ¶ 26. The Court then reversed the jury verdict and entered judgment
notwithstanding the verdict for the attorney.
{¶60} The clients initially frame their theory of the case as: the legal
malpractice diminished the value of their case against the bank. They read the
Environmental Network decision as implicitly meaning a client does not waive a legal
malpractice claim by settling. In response, it is noted said case involved an allegation
of a coerced settlement by counsel prompted by his own malpractice. Here, the trial
court granted summary judgment on the legal malpractice claim by holding: “the
acceptance of the settlement agreement by Plaintiff, which included a release
provision, is fatal to the present claims submitted by Plaintiff. Moreover, the 8th
District Court holding in Westerhaus, is applicable to the facts in the case at bar.”
{¶61} Attorney Norman and the law firm cite this Eighth District case on
appeal in support of their argument that the clients’ settlement with the bank after
termination of the law firm waived the clients’ malpractice claim. This ties in with their
other argument that the clients’ failed to show the alleged breach of duty proximately
caused injury and resulting damages because: the voluntary dismissal was without
prejudice; the claims were pending in the Cuyahoga County action at the time of
termination; case law provides a loss of venue to a different trial court in the same
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state does not establish malpractice where, as here, there was no loss from having to
litigate in a different county2; no discovery deadlines had been set in the Cuyahoga
County case at the time the clients chose to settle; the clients hired new counsel who
settled the case rather than take the case to trial; and the prior stage of discovery in a
suit voluntarily dismissed without prejudice was irrelevant as new counsel was not
prohibited from fully advancing the merits of the suit.
{¶62} The clients cite to the expert report of Attorney Engler who concluded
the conduct causing the Mahoning County case to be voluntarily dismissed “resulted
in a substantial diminution of the value” of the case against the bank. He said the
settlement is merely evidence of mitigation for the $1.3 million total loss (originally
incurred as a result of the bank’s alleged breach of fiduciary duty). However, he also
seemed to be proceeding under the impression that the merits of a malpractice action
did not depend on the merits of the underlying action. The report cited Vahila for the
proposition that there is no need to prove the underlying merits without recognizing
the implicit holding in Vahila (that some cases do implicate the case within a case
doctrine) and without citing to the explicit holding in Environmental Network. In any
event, the clients admit they are required to prove their case within a case to show
they would have recovered more (at trial or a bigger settlement) absent the
malpractice.
{¶63} On the topic of injury proximately caused by the alleged breach of duty,
the expert report did not suggest how the value of the case against the bank was
diminished by Attorney Norman. Whether or not an expert was needed on the
proximate cause element, summary judgment evidence must establish a loss was
proximately caused by the breach of duty. The element of proximate cause cannot
be presumed here. The mere presentation of summary judgment evidence that there
was breach of a duty by the attorney’s performance does not create a presumption
that the breach proximately caused a loss. (This is not a strict liability claim.)
2 The clients reply that they do not contend the loss of venue was legal malpractice but rather contend
the failure to follow instructions and immediately refile was part of their claim.
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{¶64} As an aspect of proximate cause, the premise waiver is also discussed
by the parties. In Sawchyn v. Westerhaus, a client sued the lawyer who defended
him in the punitive damages portion of a tort lawsuit filed against him. After a jury
found the client liable for $30,000 in compensatory damages and $216,000 in
punitive damages, an appeal was filed. The client sued for malpractice, complaining
the lawyer failed to enter settlement negotiations in the tort suit prior to trial. The
client then settled the tort action and dismissed the appeal. The lawyer successfully
filed a motion for summary judgment in the malpractice action alleging the client
waived the malpractice claim by settling the case rather than proceeding through the
appeal. The entry of summary judgment was affirmed. Sawchyn v. Westerhaus, 72
Ohio App.3d 25, 593 N.E.2d 420 (8th Dist.1991).
{¶65} The Eighth District found the malpractice claim was intertwined with the
settlement entered in the underlying action and held: “settlement of the original
action prior to completion on appeal has extinguished his rights to hold defendant
liable and shields defendant from a subsequent malpractice action. Hence, [the
client] has waived his claim in the malpractice action against defendant [attorney].”
Id. at 29. The Sawchyn court believed it would be impossible to calculate the value
of the claim due to the settlement and noted the judgment for punitive damages could
have been reversed on appeal. Id. at 28.
{¶66} The clients cite the Eighth District’s subsequent Monastra case where
the terminated attorney claimed his client waived any malpractice claim against him
by allowing her new attorney to settle her divorce case. The client blamed her former
attorney for failing to receive temporary alimony and for allowing her husband to
deplete the marital accounts; she said counsel made no progress in the case after
the complaint was filed. The appellate court rejected the attorney’s claim of waiver
stating, “the settlement with her husband did not extinguish her claim for legal
malpractice as the damages are still calculable and were not extinguished by the
settlement.” Monastra v. D'Amore, 111 Ohio App.3d 296, 302, 676 N.E.2d 132, 136
(8th Dist.1996).
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{¶67} “If the evidence should show that [the attorney’s] defective
representation diminished [the client’s] ability to reach a successful settlement or
succeed at trial, we see no reason why a waiver of that malpractice claim should be
implied by reason of the settlement.” Id. The Monastra court distinguished its
Sawchyn case by finding the settlement and malpractice claim in the latter case were
so intertwined they could not exist separately. See id., citing Sawchyn, 72 Ohio
App.3d 29 and Estate of Callahan v. Allen, 97 Ohio App.3d 749, 647 N.E.2d 543 (4th
Dist.1994) (finding waiver of malpractice where client, with advice of attorney she
later sued, settled her tax issue rather than appealing).
{¶68} Attorney Norman and the law firm respond that Monastra is
distinguishable as the damage from the attorney’s malpractice in that case could not
be rectified by subsequent counsel, but in the case at bar, the clients did not
establish why the new attorney could not proceed to trial or that Attorney Norman’s
conduct resulted in them having to accept a settlement that was lower than if the
case had proceeded to trial earlier. As they lost no opportunity to try their case as a
result of Attorney Norman’s alleged malpractice, it is asserted that proximate cause is
lacking, i.e., there is no evidence to show a causal connection between the amount of
settlement or inability to take the case to trial and Attorney Norman’s conduct as the
case remained pending at the time of his termination with no discovery deadlines.
The clients point to their assertion that the settlement ($300,000) was a fraction of
their total investment losses without showing how this was proximately caused by
Attorney Norman.
{¶69} The clients cite to the factual setting of Environmental Network as
pertinent to the trial court’s holding on waiver or lacking proximate cause due to the
settlement with the bank. Environmental Network dealt with an attorney (who was
later accused of malpractice) coercing the clients to settle on the second day of trial
rather than proceeding through trial. Again, Attorney Norman and the law firm were
not representing the clients when they decided to settle their case against the bank,
and the discovery deadlines were not yet set in the case. Environmental Network,
although involving proximate cause, did not involve a replacement attorney settling
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rather than taking the case to trial without an explanation as to why the terminated
attorney caused the need to settle or diminished the value.
{¶70} The clients are essentially asking this court to hold that delay in a
pending case due to counsel’s negligence necessarily diminishes the value of a
breach of fiduciary duty suit. This is not to say delay can never diminish the value of
the underlying suit, but summary judgment evidence must allow a reasonable person
to find proximate cause between the delay and the diminished settlement. Here, the
bare assertion that counsel’s conduct caused loss is mere speculation or assumption.
This client is essentially saying, “Because I was tired of dealing with attorneys and
the suit I filed, I settled for less than I deserved; the reason I experienced this
exhaustion with the process was my prior attorney’s delay” (which delay we could
assume was a breach for purposes of summary judgment). It is not for this court to
theorize how the alleged breach of duty by Attorney Norman could have proximately
caused the value of the suit against the bank to diminish.
{¶71} The parties also raise the issue of whether the clients’ evidence
satisfied the case within a case doctrine. The clients are claiming they would have
fared better had they proceeded to trial against the bank and would have recovered
their total losses at trial. Initially, it should be noted that Environmental Network
specifically dealt with the situation “when a plaintiff premises a legal-malpractice
claim on the theory that he would have received a better outcome if his attorney had
tried the underlying matter to conclusion rather than settled it,” and the Court held
“the plaintiff must establish that he would have prevailed in the underlying matter and
that the outcome would have been better than the outcome provided by the
settlement.” Environmental Network, 199 Ohio St.3d 209 at ¶ 2. See also id. at
syllabus (“When a plaintiff premises a legal-malpractice claim on the theory that he
would have received a better outcome if his attorney had tried the underlying matter
to conclusion rather than settled it * * *”).
{¶72} Although the specific factual situation before the Supreme Court
involved the same attorney committing malpractice and settling the case, both that
situation and the situation in the case at bar involve the client claiming the attorney’s
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conduct resulted in the settlement and they would have fared better in the absence of
the attorney’s conduct and/or if they had tried the case. The loss and the extent of
the loss are based upon the merits of the underlying action. Environmental Network
presented one example of the type of malpractice actions that falls under the rubric of
the case within the case doctrine mentioned in Vahila. See Environmental Network,
199 Ohio St.3d 209 at ¶ 14-17, citing Vahila, 77 Ohio St.3d at 421-422, 427-428.
[U]nlike the plaintiffs in Vahila, who sustained losses regardless of
whether their underlying case was meritorious, [the clients] here could
recover only if they could prove that they would have succeeded in the
underlying case and that the judgment would have been better than the
terms of the settlement. Thus, the theory of this malpractice case
places the merits of the underlying litigation directly at issue because it
stands to reason that in order to prove causation and damages,
appellees must establish that appellant's actions resulted in settling the
case for less than appellees would have received had the matter gone
to trial.
Environmental Network, 199 Ohio St.3d 209 at ¶ 18. Furthermore, both sides here
agree, the case within a case doctrine applies to the clients’ malpractice action.
{¶73} Attorney Norman and the law firm argue the clients did not satisfy their
obligation to provide summary judgment evidence on their case within a case.
Notably, the client has the same burden as they would have had in the underlying
case against the bank. Environmental Network, 199 Ohio St.3d 209 at ¶ 16, 19. The
case against the bank was for breach of fiduciary duty. It is asserted testimony by a
qualified expert was required on the investments in order to avoid summary
judgment. Attorney Norman notes the clients provided a report by a certified public
accountant, who was their personal accountant, attesting to the total loss from the
investments. The accountant stated the bank invested over $2 million in 2009 into
leveraged ETFs and the clients lost $1.29 million. The accountant provided a
definition of a leveraged ETF, quoting an unnamed source as follows: “an exchange
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traded fund that uses financial derivatives and debt to amplify the returns of an
underlying index.” The accountant added, “It is leveraged by the investor funds and
additional funds from the debt. It is a sophisticated and volatile investment
instrument.” He said the clients were not high risk investors and requested the ETFs
be sold when they realized where their assets were invested.
{¶74} In moving for summary judgment, Attorney Norman and the law firm
noted the accountant’s report did not contain an opinion on the standard of care or
breach of fiduciary duty in the underlying suit. Attached to the April 20, 2015 motion
for summary judgment, was an affidavit stating, “Despite the Court’s deadline of
February 15, 2015 for Plaintiffs to produce expert reports, Plaintiffs did not submit an
expert report opining the First Merit Bank, Jeffrey P. Onuska and/or others breached
the standard of care when they allegedly provided Professional financial advice to
Plaintiffs relative to investing in exchange-traded funds.”
{¶75} In responding to the motion for summary judgment, the clients
submitted the accountant’s affidavit. Attorney Norman and the law firm asked the
trial court to strike any new opinions as untimely. They also stated the accountant
failed to recite how he was qualified to render an opinion on sophisticated financial
products or the standard of care for financial advisers in making investments and
trading funds, noting the accountant’s affidavit disclosed, “I am not a sophisticated
investor and have a basic knowledge of a Traded Fund.”
{¶76} On appeal, the clients do not contend the accountant provided an
expert opinion on breach of the standard of care for financial advisers. Rather, they
refer to the accountant’s affidavit along with Mr. Pipino’s affidavit to prove factual
matters. The clients insist these affidavits are sufficient to raise jury questions on the
facts, positing expert testimony is not required to prove the bank and the sued
employees breached their fiduciary duties to the clients. Mr. Pipino stated: he
instructed the bank to make safe and conservative investments; the bank promoted a
leveraged ETF as the investment choice; he was not familiar with the product; in
response to their recommendation, he reiterated his concern that the trust should
contain safe and conservative investments; the bank assured him the suggested
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investments were safe and the return would be significant, espousing superior
knowledge; and he consented to the investments. Mr. Pipino concluded the
recommendation was contrary to his directives on investment strategy. He said the
bank’s advice was false and violated the bank’s duty to avoid volatile, high risk
investments and the bank knew or should have known leveraged ETFs were not
suitable investments.
{¶77} He attached two articles to his affidavit. One is entitled, “SEC official
suggests new label for leveraged ETFs” and states leveraged ETFs “require greater
deal of disclosure and up-front work with the client for them to understand the
investment and the structural risks and BlackRock believes that they should not be
labeled ETFs.” As stated in a motion to strike, the articles are not incorporated into
the affidavit and cannot substitute for expert testimony.
{¶78} The clients acknowledge their claim against the bank was for breach of
fiduciary duty, stating a fiduciary relationship exists between a financial advisor and
his clients. Citing Byrley v. Nationwide Life Ins. Co., 94 Ohio App.3d 1, 18, 640
N.E.2d 187 (6th Dist.1994) (“A broker and client are in a fiduciary relationship and,
therefore, the broker owes the client a duty to disclose material information
concerning investments.”). The clients conclude the dispositive issues are whether
the bank followed the clients’ instructions and made full disclosures to the clients.
The clients urge the answers to these questions are “within the ordinary, common,
and general knowledge of mankind.” They cite the Ramage case, which outlined the
“common knowledge exception” as follows: “Under this exception, matters of
common knowledge and experience, subjects which are within the ordinary, common
and general knowledge and experience of mankind, need not be established by
expert opinion testimony.” Ramage v. Cent. Ohio Emergency Serv., Inc., 64 Ohio
St.3d 97, 103, 592 N.E.2d 828 (1992).
{¶79} In Ramage, the Court stated expert testimony is not only needed to
prove medical malpractice by a physician but also to prove the standard of care for a
nurse exercising professional skill and judgment. Id. at 102-103. The plaintiff asked
the Court to apply the common knowledge exception to the nurse’s conduct. In
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refusing to apply the exception, the Court distinguished cases applying the exception
where the “allegations were claims of ordinary negligence” as opposed to the case
before it where the allegations “go to the professional skill and judgment of the
nurses—matters not within the common knowledge and experience of the jurors.” Id.
at 103. “Where the alleged negligence involves the professional skill and judgment of
a nurse, expert testimony must be presented to establish the prevailing standard of
care, a breach of that standard, and that the nurse's negligence, if any, was the
proximate cause of the patient's injury.” Id. at 103-104.
{¶80} Attorney Norman and the law firm respond by arguing a qualified expert
was required to prove breach of the standard of care for a financial professional.
They cite a Supreme Court case requiring expert testimony show medical
malpractice. See Berdyck v. Shinde, 66 Ohio St.3d 573, 579, 613 N.E.2d 1014(1993) (“Whether negligence exists is determined by the relevant standard of conduct
for the physician. That standard is proved through expert testimony.”). In claiming
expert testimony is needed to show professional malpractice of a financial adviser,
they cite a case holding it was necessary to establish the standard of care of an
insurance agent through expert testimony in order to avoid summary judgment. See
MBE Collection, Inc. v. Westfield Cos., Inc., 8th Dist. No. 79586 (Apr. 18, 2002).
Notably, the Byrley case cited by the clients found evidence to avoid summary
judgment or directed verdict on the breach of fiduciary claim against the broker where
the plaintiff obtained an expert opinion on the investment advice. Byrley, 94 Ohio
App.3d at 13-14. Attorney Norman and the law firm conclude the financial advice
relative to investing in ETFs or leveraged ETFs and whether the bank breached its
standard of care in so advising is clearly beyond the common knowledge of a
layperson.
{¶81} Notably, the clients’ expert report on Attorney Norman’s malpractice
contained an opinion on Attorney Norman’s failure to provide an expert report to the
bank by the deadline in the Mahoning County action:
It would have been imperative that the Plaintiffs hired an expert, and
produced an expert report showing that Defendants [bank and
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employees] were negligent, reckless and without authority to make the
investments in the Trusts which led directly to the 1.3 Million Dollar loss.
The allegation was that the type of investment was risky and not well
suited for the needs of the Trusts where the main fiduciary concern was
safety of the investment. First Merit invested trust funds into
speculative products. No report was ever produced. This was a direct
violation of the Court’s order and without such a report the case could
not go forward.
Consequently, the clients’ own expert on legal malpractice was opining an expert
affidavit on breach of fiduciary duty was required in the underlying action.
{¶82} In their reply brief, the clients claim an attorney who files a lawsuit
against a bank for breach of fiduciary duty necessarily admits there was a breach of
fiduciary duty by the mere filing of the lawsuit, citing e.g., Civ.R. 11. However, this
was not specified in the clients’ initial brief, and this position would seem to
eviscerate the case within a case doctrine. If the original filing of the suit for the
clients by counsel constitutes an admission in a later malpractice case and thereby
satisfies the case within a case doctrine, then the Environmental Network Court
would not have reversed a jury verdict due to the lack of evidence on the merits of
the underlying lawsuit filed by the attorney now being sued by his clients. This court
concludes the clients breach of fiduciary duty claim required qualified expert
testimony in order to satisfy the case within the case doctrine (as to the allegation
that the legal malpractice caused the case to diminish in value).
{¶83} Alternatively, on the concept of whether any loss was proximately
caused by the malpractice, there is a suggestion the clients, at least, sufficiently
showed damages were proximately caused by malpractice due to loss of use of the
money during the delay caused by Attorney Norman. Attorney Engler’s report stated
the malpractice-induced delay in resolving the case could be seen as causing
damage for loss of use of the money they would have received sooner but for the
malpractice. The clients believe this premise is supported by Paterek.
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{¶84} The circumstances existing in this case, however, do not support the
clients’ contention. Whether the trial against the bank would have proceeded in
October 2012 as scheduled is speculative. Additionally, the clients settled the case
against the bank in September 2013. This settlement was much more ($200,000
more) than the bank’s offer at mediation in November 2012. Moreover, the loss of
use of the money (money alleged to be unavailable for future investment as a result
of the bank’s breach of fiduciary duty) can be considered part of the settlement.
Finally, the portion of Paterek relied upon by the clients must be read in context of the
case before the Court.
{¶85} The clients rely on the following statement: “courts need not—and
should—overlook the possibility of settlement or the passage of time in determining
damages suffered by a malpractice plaintiff.” Paterek v. Petersen & Ibold, 118 Ohio
St.3d 503, 2008-Ohio-2790, 890 N.E.2d 316, ¶ 38. In that case, the attorney
voluntarily dismissed the client’s suit against a motorist and failed to refile the suit
within one year, causing the clients to lose the ability to bring their cause of action. In
the malpractice action, the parties stipulated there was merit to the underlying suit
against the motorist; they also stipulated the attorney was liable for damages
proximately caused by the dismissal with prejudice. Id. at ¶ 3, 9. The only issue at
trial was the amount of damages. Id. at ¶ 15. The trial court reduced the jury award
to the tortfeasor’s $100,000 liability policy, even though the clients had $250,000 in
underinsured motorist coverage. Id. at ¶ 17. The appellate court reversed, finding
the clients were not required to show collectability. Id. at ¶ 23-24. The issue before
the Supreme Court was “whether the collectability of any judgment that might have
resulted from the lost claim is relevant to calculating the malpractice damages.” Id. at
¶ 29.
{¶86} The Paterek Court stated the answer was implicit within the Vahila
holding “that there must be a causal connection between the conduct complained of
and the resulting loss.” Id., citing Vahila, 77 Ohio St.3d at syllabus. The Court
pointed out the attorney who commits malpractice is not liable for the underlying
tortfeasor’s conduct but is only liable for his own conduct. Paterek, 118 Ohio St.3d
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503 at ¶ 30 (“The proper inquiry, then, is this: Had the appellants not been negligent,
how much could Irene have received from a settlement or a judgment?”). The Court
then expressly adopted the prevailing view that the client’s recovery from an attorney
for malpractice is limited to the amount which would have been collectable and the
client has the burden to prove the claimed amount of damages was collectable. Id. at
¶ 32, 39.
{¶87} In doing so, the Court reviewed the minority position, which holds non-
collectability is an affirmative defense which can be raised by the attorney, but it is
not an element of the client’s case. Id. at ¶ 33-34. The Court noted: “Moreover, this
minority has criticized the majority position because it ignores the possibility of
settlement between the plaintiff and the underlying tortfeasor and also overlooks that
the passage of time itself can be a militating factor either for or against collectability
of the underlying case.” Id. at ¶ 34, quoting Kituskie v. Corbman, 552 Pa. 275, 285,
714 A.2d 1027 (1998) (which took this passage from Smith v. Haden). The Paterek
Court also quoted and disagreed with Smith v. Haden, 868 F.Supp. 1, 2 (D.D.C.1994)
(which stated the plaintiff is only required to prove loss of a judgment on a valid
claim). An underlying holding in Smith was as follows:
To also require a plaintiff to show the degree of collectability of a
judgment in a legal malpractice case is subject to criticism on several
grounds. For example, it wholly ignores the possibility of a settlement
between plaintiff and the potential defendant, either before or after
judgment, which may be encouraged by active litigation of a claim. * * *
In addition, the passage of time itself can be a significant factor
militating either for or against the collectability of a judgment. It is not
without significance that a judgment is valid for many years. * * * In this
case, for example, it may be that [the original defendant’s] financial
situation has improved since he declared bankruptcy or that, as Plaintiff
suggests, as a matter of law Plaintiff's judgment would not be a
dischargeable debt, thereby giving Plaintiff a preference over a
discharge creditor whose debt has been reaffirmed. [Citations omitted.]
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Smith, 868 F.Supp. at 2.
{¶88} As can be seen, the holding in Paterek was made in the context of
addressing the question of whether collectability of a judgment against the original
defendant is part of the client’s malpractice action when the attorney caused the
client to “lose” the action against the original defendant. Passage of time referred to
the fact that a defendant may have been uncollectable but is now collectable or vice
versa. Likewise, the ability to consider that the clients may have entered a settlement
with the original defendant (before or after judgment) was a reference to the
considerations in evaluating collectability. The Court was referring to the possibility
of a settlement that never materialized due to the dismissal of the lawsuit with
prejudice and the collectability of such a settlement. The Court did not suggest the
mere passage of time due to delay caused by an attorney automatically means
damages were proximately caused due to the temporary loss of use of money
thereafter collected in a settlement. Nor did the Court issue a holding where a client
settles a case after terminating an attorney and sues the attorney for malpractice
without explaining how the attorney diminished the value of the underlying case
where the case still remained pending and awaiting trial with discovery deadlines yet
to be set. For all of the foregoing reasons, this court upholds the grant of summary
judgment entered against the clients on their legal malpractice claim.
{¶89} In conclusion, as to the law firm’s appeal, we hereby reverse summary
judgment entered against the law firm on its quantum meruit counterclaim, and
remand for further proceedings on the counterclaim. As to the clients’ appeal, we
affirm the grant of summary judgment entered against the clients on their legal
malpractice claim.
Donofrio, J., concurs.
Waite, J., concurs.