Rubin Resources v. Garold "Gary" W. Morris, II ( 2016 )

IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
January 2016 Term
FILED
June 10, 2016
released at 3:00 p.m.
No. 15-0122 RORY L. PERRY II, CLERK
SUPREME COURT OF APPEALS
OF WEST VIRGINIA
RUBIN RESOURCES, INC.,
Plaintiff Below, Petitioner
v.
GAROLD “GARY” W. MORRIS, II,
Defendant Below, Respondent
Appeal from the Circuit Court of Lewis County
The Honorable John L. Henning, Judge
Civil Action No. 13-C-64
REVERSED AND REMANDED
Submitted: March 2, 2016
Filed: June 10, 2016
David Allen Barnette, Esq. David D. Johnson, III, Esq.
Vivian H. Basdekis, Esq. Winter & Johnson PLLC
JACKSON KELLY, PLLC Charleston, West Virginia
Charleston, West Virginia Attorney for Respondent
Attorneys for Petitioner
JUSTICE WORKMAN delivered the Opinion of the Court.
SYLLABUS BY THE COURT
1. “A circuit court’s entry of summary judgment is reviewed de novo.”
Syl. Pt. 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994).
2. “‘Generally, in a suit against an attorney for negligence, the plaintiff
must prove three things in order to recover: (1) the attorney’s employment; (2) his/her
neglect of a reasonable duty; and (3) that such negligence resulted in and was the proximate
cause of loss to the plaintiff.’ Syl. Pt. 1, Calvert v. Scharf, 217 W.Va. 684, 619 S.E.2d 197
(2005).” Syl. Pt. 1, Humphries v. Detch, 227 W.Va. 627, 712 S.E.2d 795 (2011).
3. “Damages arising from the negligence of an attorney are not
presumed, and a plaintiff in a malpractice action has the burden of proving both his loss
and its causal connection to the attorney’s negligence.” Syl. Pt. 3, Keister v. Talbott, 182
W.Va. 745, 391 S.E.2d 895 (1990).
4. A plaintiff in a legal malpractice action has a general duty to mitigate
his or her damages. This doctrine requires a plaintiff to take reasonable steps within his or
her ability to minimize losses caused by the attorney’s negligence. However, a plaintiff is
not required to take actions which are impractical, disproportionately expensive, or likely
futile. The scope of a plaintiff’s duty to mitigate damages depends on the particular facts
of the case.
i
Workman, Justice:
In this legal malpractice action, Petitioner Rubin Resources, Inc. (“Rubin”),
filed suit asserting that Respondent Garold “Gary” W. Morris, II (“Mr. Morris”) was
negligent in performing a title examination and preparing a title opinion for Rubin
regarding an oil and gas leasehold, and that as a direct result of that negligence, Rubin
incurred monetary damages totaling $278,455. Mr. Morris admitted that he was negligent
in performing the title examination and preparing the title opinion, but he contested his
liability for the damages claimed by Rubin. Following discovery, the parties filed cross-
motions for summary judgment. After considering arguments on the motions, the Circuit
Court of Lewis County, West Virginia, granted summary judgment in favor of Mr. Morris
and awarded Rubin no damages.
On appeal to this Court, Rubin argues it is entitled to summary judgment
because the undisputed facts demonstrate Mr. Morris’s professional negligence was the
proximate cause of the damages at issue. Upon review of the parties’ briefs and oral
arguments, the appendix record, and the pertinent authorities, we conclude that Rubin’s
arguments have merit. We therefore reverse the judgment of the circuit court and remand
with instructions to enter summary judgment in favor of Rubin.
1
I. FACTUAL AND PROCEDURAL HISTORY
Since it organized in 1983, Rubin has been engaged in the oil and gas
production industry. In 2000, Rubin entered into an agreement with Jackson L. Smith
Enterprises, Inc., dba West Virginia Energies (“WVE”), to purchase WVE’s interest in the
leasehold estate of a 120-acre tract of land in Ritchie County, West Virginia, for the
consideration of $5,000 plus royalties. The agreement between Rubin and WVE provided,
in relevant part, that Rubin would procure a title examination concerning the tract; and, in
the event it was determined that WVE did not hold good and marketable title to the
leasehold estate, WVE would substitute other property acceptable to Rubin. The agreement
provided the following substitution clause:
For and upon receipt of Five Thousand ($5,000.00) from
[Rubin] as payment for the leasehold estate(s) . . ., [WVE]
hereby agrees to warrant title. Upon legal examination of such
leasehold(s), should the title be found to be defective, [WVE]
shall, at their [sic] expense, perform any curative action that is
necessary and required by [Rubin’s] legal examiner. Should
the title be found to be not a “good and marketable” leasehold
then [WVE] hereby agrees to replace the lease with substitute
property agreeable to [Rubin].
Rubin retained attorney Mr. Morris to conduct the title examination and
prepare a title opinion letter pertaining to the leasehold estate of the 120-acre tract. Mr.
Morris did so and presented his title opinion letter to Rubin in July of 2000. However, Mr.
Morris failed to identify a declaration of pooling, which was of record at that time in Ritchie
County, and affected the 120-acre tract such that Rubin could not acquire the oil and gas
2
rights to the tract.1 Inasmuch as Mr. Morris failed to identify this declaration of pooling,
Rubin did not exercise its right of substitution. 2
In 2000, Rubin drilled a well on the 120-acre tract and it has been producing
gas from that well for sale to a third party continuously since then. Rubin spent
approximately $200,000 to produce this well and its total income from the production and
sale of gas therefrom has been in excess of $270,000.
In 2012, Antero Resources Appalachian Corporation (“Antero”) offered to
purchase Rubin’s right to produce gas from the Marcellus Shale3 underlying the 120-acre
1
The declaration of pooling was recorded by CNG Development Co. (“CNG”), in
1986, and it affected the 120-acre tract and two adjacent tracts, one of which consisted of
approximately 180 acres. At the time CNG recorded the declaration of pooling, it was the
owner of the oil and gas leasehold estates in each of the three pooled tracts. In 1990, CNG
drilled a well on the 180-acre tract, and that well has been producing natural gas
continuously since that time. The parties agree that the legal effect of CNG’s recording of
the declaration of pooling, and then drilling a producing gas well on the 180-acre tract, was
that CNG continued to hold by production the leasehold estate in all three of the pooled
tracts, including the 120-acre tract, even after CNG’s lease for the 120-acre tract would
otherwise have expired under its own terms.
2
Presumably WVE was also unaware of the declaration of pooling.
3
See Butler v. Charles Powers Estate ex rel. Warren, 65 A.3d 885, 887 n.1 (Pa.
2013) (“In general, shale gas is a term used to define natural gas that has become trapped
within various shale formations throughout North America. Marcellus shale natural gas is
that gas which is located in the Marcellus Shale Formation, which covers 104,067 square
miles in Ohio, West Virginia, Pennsylvania, Maryland, and New York.”). The Marcellus
Shale is located much deeper in the earth than is the stratum from which Rubin’s well
produces gas. “Recent technological advancements have made it possible to produce
natural gas from the deep Marcellus and Utica Shale reservoirs. . . . As one of the largest
3
tract for the sum of $216,000, together with an overriding royalty of 2.375% (worth
approximately $30,000). However, Antero conducted a title examination and discovered
that the oil and gas leasehold estate in the 120-acre tract had been held by production by
CNG since 1990. Antero gave notice to Rubin of this title defect, and advised that it would
not go forward with its purchase of Rubin’s Marcellus Shale rights. After learning about
the declaration of pooling, Rubin informed Mr. Morris about the problem.
Thereafter, Rubin notified CNX, successor-in-title to CNG, that it had drilled
a well on the 120-acre tract without knowing about the declaration of pooling. CNX
asserted claims against Rubin, informally, based on Rubin’s production of gas from the
well. In March of 2013, Rubin entered into a settlement agreement with CNX for the sum
of $32,455 4 to resolve those claims. 5 In July of 2013, Rubin and CNX entered into a
“wellbore interest” assignment and bill of sale in the subject well. Rubin continues to
operate the well, selling the gas to Dominion, a company related to CNX.
deposits of natural gas in the United States, the Marcellus Shale reservoir alone is estimated
to contain enough gas to meet the entire energy demand in the United States for more than
the next decade.” Matt Warnock, Marcellus and Utica Shale Natural Gas Development
Presents New Revenue Opportunities, New Challenges for Local Governments in Ohio, 23
No. 1 Ohio Mun. Serv. 2 (Jan./Feb. 2011).
4
This sum includes $15,000 for a site location fee and $17,455 (the value of 1/32nd
overriding royalty interest through December 31, 2012).
5
Rubin asserts that it gave Mr. Morris notice of the defect in the title opinion letter
approximately nine months before it ultimately resolved the matter with CNX.
4
In April of 2013, Rubin filed this legal malpractice action against Mr. Morris
seeking to recover the amount it paid to CNX, and to recover the proceeds lost when its
agreement with Antero was cancelled. The parties engaged in discovery through
interrogatories and requests for production of documents. During a scheduling conference
before the circuit court, the parties agreed the facts material to Rubin’s claims against Mr.
Morris were largely undisputed and this action should be resolved through summary
judgment. Thereafter, the parties prepared a joint stipulation of facts, filed summary
judgment motions, and presented oral argument to the circuit court.
By order entered January 6, 2015, the circuit court granted summary
judgment against Rubin and in favor of Mr. Morris. The circuit court found that Rubin
unnecessarily self-reported the drilling to CNX, and voluntarily entered into the CNX
settlement agreement, even though the well had been drilled more than ten years prior. The
circuit court reasoned that because Rubin may have acquired title by adverse possession,
the voluntary settlement with CNX precluded any finding that the damages were
proximately caused by Mr. Morris’s negligence. The circuit court further found that Mr.
Morris’s negligence did not lead to the loss of the Antero deal because Mr. Morris “cannot
be charged with the loss of a contract to sell rights that [Rubin] never would have owned.”
Finally, the circuit court rejected Rubin’s claim it would have owned other valuable
Marcellus Shale rights through the substitution clause had it been aware of the title defect
as “too remote and speculative.”
5
II. STANDARD OF REVIEW
Rubin appeals the circuit court’s order awarding summary judgment to Mr.
Morris and denying its motion for summary judgment. Both parties agree that the facts
material to Rubin’s claims are largely undisputed and that this action should be resolved
through summary judgment. We review the circuit court’s decision de novo, according no
deference to the legal conclusions reached. As we held in syllabus point one of Painter v.
Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994): “A circuit court’s entry of summary
judgment is reviewed de novo.”
III. DISCUSSION
“Generally, in a suit against an attorney for negligence,
the plaintiff must prove three things in order to recover: (1) the
attorney’s employment; (2) his/her neglect of a reasonable
duty; and (3) that such negligence resulted in and was the
proximate cause of loss to the plaintiff.” Syl. Pt. 1, Calvert v.
Scharf, 217 W.Va. 684, 619 S.E.2d 197 (2005).
Syl. Pt. 1, Humphries v. Detch, 227 W.Va. 627, 712 S.E.2d 795 (2011).
In this case, we are concerned only with the third element because Mr. Morris
neither disputed that an attorney-client relationship existed nor that he was negligent in
performing the title examination and title opinion. With regard to the third element, we
held in syllabus point three of Keister v. Talbott, 182 W.Va. 745, 391 S.E.2d 895 (1990),
that “[d]amages arising from the negligence of an attorney are not presumed, and a plaintiff
in a malpractice action has the burden of proving both his loss and its causal connection to
6
the attorney’s negligence.” Consequently, “in order to prevail in a malpractice action
against a lawyer, the plaintiff must establish not only his or her damages, but must
additionally establish that, but for the negligence of the lawyer, he or she would not have
suffered those damages.” Calvert v. Scharf, 217 W.Va. 684, 695, 619 S.E.2d 197, 208
(2005). The purpose of this requirement is to safeguard against speculative and conjectural
claims. See, e.g., Harrison v. Casto, 165 W.Va. 787, 271 S.E.2d 774 (1980) (finding no
error in lower court’s dismissal of case alleging malpractice against attorney who failed to
file complaint on behalf of client upon finding that, although attorney did not file
complaint, client had not been harmed as statute of limitations on action had not run at time
malpractice action was instituted).
Before turning to the arguments of the parties, we note that this case involves
malpractice in the performance of transactional work (giving advice or preparing
documents for a business transaction) as opposed to litigation malpractice. See Viner v.
Sweet, 70 P.3d 1046, 1052 (Cal. 2003) (explaining distinction and holding in both litigation
and transactional malpractice action, “the crucial causation inquiry is what would have
happened if the defendant attorney had not been negligent.”); Ware v. Durham, 268 S.E.2d
668, 669 (Ga. 1980) (“Where the alleged malpractice is loss of a claim, the former client’s
recovery against the former attorney properly is limited by the amount that would have
been recovered from the defendant or the potential defendant. . . . However, where the
alleged malpractice . . . consists of allegedly negligent examination or certification of title
to real estate, the rule . . . is that the former client may recover from the attorney his ‘actual
7
damages.’”) (citations omitted). “Some of the more common areas of ‘transactional
malpractice’ include careless title searches, erroneous tax advice, and sloppy contract
preparation. A survey of the cases indicates that the courts calculate damages by focusing
on such matters as lost value, out of pocket expenses, and loss of future expectations.” John
H. Bauman, Damages for Legal Malpractice: An Appraisal of the Crumbling Dike and the
Threatening Flood, 61 Temp. L. Rev. 1127, 1150 (1988) (footnotes omitted). The
following example illustrates the proximate cause analysis utilized in a transactional legal
malpractice claim.
If the client’s position is “my lawyer gave me bad
advice that I followed, and it cost me money,” the client in
effect is saying, “My lawyer gave me incorrect advice. I acted
in reliance on this advice, and as a proximate result, I sustained
$ x in damages. But for that advice, I would not have been
damaged at all.” At times, the attorney’s negligence does not
relate to decisions made in the course of litigation but involves
some recommendation or guidance negligently given.
Therefore, the “case within a case” will not entail the
reconstruction of a trial or appeal; instead, the client must show
alternative measures he could have taken “but for” the
attorney’s faulty advice.
Richard H.W. Maloy, Proximate Cause: The Final Defense in Legal Malpractice Cases,
36 U. Mem. L. Rev. 655, 676 (2006) (emphasis added). The crux of Rubin’s argument is
that the alternative measure here is obvious; had Mr. Morris alerted it to the declaration of
pooling, Rubin would have availed itself of the substitution clause in its contract with WVE
and avoided the losses at issue.
8
While the extent of damages in a legal malpractice action is ordinarily a
question of fact, the parties here stipulated to the monetary amount Rubin (1) paid CNX to
settle their dispute over the oil and gas leasehold, and (2) suffered when the Antero deal
did not materialize. The pivotal issue is therefore whether Rubin established that its
damages were proximately caused by Mr. Morris’s negligence. A proximate cause
determination is reviewed on appeal as a question of law if all evidentiary inferences are
incapable of reasonable doubt. Donald v. Long Branch Coal Co., 86 W.Va. 249, 103 S.E.
55 (1920); Bullard v. Bailey, 959 P.2d 1122 (Wash. 1998). With this background to guide
us, we proceed to consider the merits of this case. 6
A. CNX Damages
Rubin seeks damages in the amount of $32,455, which it paid to settle its
dispute with CNX and to obtain CNX’s consent for Rubin to continue to operate the well
on the 120-acre tract. Rubin argues there is a clear nexus between Mr. Morris’s negligence
and its damages; the damages that resulted in reliance on this error were both direct and
6
Notwithstanding our ultimate focus upon the proximate causation of damages, we
note the second element of a legal malpractice claim requires a showing that Mr. Morris
acted negligently and breached his duty to Rubin through the failure to discover the
declaration of pooling. “An attorney who undertakes to perform professional services for
a client is required to exercise the knowledge, skill, and ability ordinarily possessed and
exercised by members of the legal profession in similar circumstances.” Syl. Pt. 1, Keister,
182 W.Va. at 746, 391 S.E.2d at 896. Rubin retained Mr. Morris for the express purpose
of determining whether Rubin could acquire good and marketable title and the exclusive
right to drill upon the leasehold. Clearly, Mr. Morris failed to conduct a proper title search
that would have disclosed the declaration of pooling and deviated from the accepted
standard of care.
9
foreseeable when it promptly put the property to its intended use of producing oil and gas,
thereby violating the declaration of pooling of record that Mr. Morris omitted from his title
opinion. Accordingly, Rubin asserts it met the proximate cause requirement, typical of any
negligence tort. See e.g., Spencer v. McClure, 217 W.Va. 442, 446, 618 S.E.2d 451, 455
(2005) (recognizing plaintiff has burden in tort action to prove by preponderance of
evidence defendant was negligent and such negligence was proximate cause of injury).
Rubin further argues the circuit court clearly misconstrued this Court’s
holding in Calvert when it determined Rubin’s settlement with CNX precluded any finding
that these damages were proximately caused by Mr. Morris’s negligence. We agree that
Calvert does not stand for the proposition that plaintiffs cannot maintain a legal malpractice
action after settling a lawsuit. See, e.g., Parnell v. Ivy, 158 S.W.3d 924 (Tenn. Ct. App.
2004) (holding settlement of underlying lawsuit does not shield former attorneys from legal
malpractice liability). Rather, this Court in Calvert simply declined the invitation to deviate
from the proximate cause standard.7
7
In Calvert, the plaintiff filed suit alleging malpractice when the lawyer was
negligent in drafting a provision in a will. We rejected the contention that the Calverts were
entitled to damages merely because they were called into court by virtue of the declaratory
action regarding the will. 217 W.Va. at 696, 619 S.E.2d at 209. Instead, we found the
Calverts were required to establish they suffered an actual loss and that the loss “was
proximately caused by negligence in the drafting” of the will. Id. at 695-96, 619 S.E.2d at
208-09. Because the defect was ultimately cured so that the intended beneficiary received
his bequest pursuant to the will, we found “no causal connection between the attorney’s
10
Conversely, Mr. Morris argues that because Rubin extracted natural gas from
the property for a dozen years, it had obtained fee simple title to the oil and gas rights
underlying the 120-acre tract through adverse possession long before it settled the claims
of CNX. Mr. Morris states Rubin could have avoided any liability had it raised with CNX
the defense of adverse possession; because Rubin had the ability to avoid the CNX losses,
Mr. Morris contends its failure to mitigate becomes the proximate cause of its injury. Rubin
disagrees with Mr. Morris’s legal assessment and maintains it had no reasonable prospect
of prevailing on the theory of adverse possession. 8 Rubin claims it properly mitigated
damages upon discovery of its trespass by immediately cutting off its liability and reaching
a favorable settlement.
While the circuit court categorized its decision to deny Rubin’s request for
the CNX damages as Rubin’s failure to establish the element of proximate cause, this issue
is actually governed by the related principle of mitigation of damages. The theoretical
negligence and the beneficiary’s damages, because the beneficiary has not suffered
damages proximately caused by the attorney’s negligence.” Id.
8
Rubin asserts it could not establish the existence of each of the six elements of
adverse possession by clear and convincing evidence. See Syl. Pt. 2, Brown v. Gobble, 196
W.Va. 559, 474 S.E.2d 489 (1996) (“The burden is upon the party who claims title by
adverse possession to prove by clear and convincing evidence all elements essential to such
title.”); Syl. Pt. 3, Somon v. Murphy Fabrication and Erection Co., 160 W.Va. 84, 232
S.E.2d 524 (1977) (“One who seeks to assert title to a tract of land under the doctrine of
adverse possession must prove each of the following elements for the requisite statutory
period: (1) That he has held the tract adversely or hostilely; (2) That the possession has
been actual; (3) That it has been open and notorious (sometimes stated in the cases as
visible and notorious); (4) That possession has been exclusive; (5) That possession has
been continuous; (6) That possession has been under claim of title or color of title.”).
11
foundation for a plaintiff’s duty to mitigate damages is that the defendant’s negligence is
not the proximate cause of any damages that could have been avoided had the plaintiff
taken reasonable steps to mitigate. Preston v. Keith, 584 A.2d 439, 441-42 (Conn. 1991).
As discussed above, proximate cause of damages is an element of a
negligence action and thus the plaintiff has the burden of establishing this element. Based
on the undisputed facts of this case, we find that Rubin has established that the damages it
incurred by settling the claims of CNX were proximately caused by Mr. Morris’s
negligence because those damages naturally flowed from his failure to detect the
declaration of pooling. We now turn to Mr. Morris’s argument regarding mitigation of
damages.
A plaintiff’s duty to mitigate damages focuses on
whether the plaintiff took reasonable steps to avoid or reduce
damages that were proximately caused by the negligence of the
defendant. A damaged party is only expected to do what is
reasonable under the circumstances and need not embark upon
a course of action that may cause further detriment to him or
her. The doctrine of mitigation of damages does not permit
damages reduction based on what could have been avoided
through Herculean efforts, and a plaintiff’s duty to mitigate
damages does not extend to accepting a position that entails
great hardship or personal embarrassment. An injured party is
only accountable for those hypothetical ameliorative actions
that could have been accomplished through ordinary and
reasonable care, without requiring undue effort or expense.
Furthermore, when both of the parties have the same
opportunity to reduce damages, the defendant cannot later
contend that the plaintiff failed to mitigate. The general rule is
that injured parties need not institute and prosecute lawsuits
in order to mitigate damages as litigation is too uncertain and
costly to impose such a duty on a party.
12
25 C.J.S. Damages § 184 (emphasis added and footnotes omitted); see also Robinson v.
Carney, 632 A.2d 106, 108 (D.C. Ct. App. 1993) (noting general rule is injured party need
not institute and prosecute lawsuits in order to mitigate damages).
The failure to mitigate damages is a defense which precludes recovery for
those consequences of the negligent attorney’s actions which could have been avoided
through a plaintiff’s reasonable efforts to minimize loss. See Smith v. Childs, 437 S.E.2d
500, 507 (N.C. Ct. App. 1993). As with other defenses, the burden is on the attorney
defendant to show the plaintiff neglected to mitigate damages. Id.; MB Indus., LLC v. CNA
Ins. Co., 74 So. 3d 1173, 1181 (La. 2011) (holding in legal malpractice action, failure to
mitigate damages is an affirmative defense, and burden of proof is on party asserting
defense). When raising this defense, the defendant attorney bears the burden of proving
that the proposed means of mitigation were reasonable under the circumstances, could be
accomplished at a reasonable cost, and were within the plaintiff’s ability. See McCormick
Int’l USA, Inc. v. Shore, 277 P.3d 367, 371 (Idaho 2012).
We hereby hold that a plaintiff in a legal malpractice action has a general
duty to mitigate his or her damages. This doctrine requires a plaintiff to take reasonable
steps within his or her ability to minimize losses caused by the attorney’s negligence.
However, a plaintiff is not required to take actions which are impractical,
disproportionately expensive, or likely futile. The scope of a plaintiff’s duty to mitigate
damages depends on the particular facts of the case. See MB Indus., 74 So. 3d at 1181 (La.
13
2011); Am. Reliable Ins. Co. v. Navratil, 445 F.3d 402, 406 (5th Cir. 2006) (“Although as
a general principle, a client has a duty to mitigate damages caused by its attorney’s
malpractice, such a duty cannot require the client to undertake measures that are
unreasonable, impractical, or disproportionately expensive considering all of the
circumstances.”).
Applying this standard to the instant case, it is clear that Rubin took
reasonable steps under the circumstances to mitigate its damages. After discovering the
title defect, Rubin took responsible actions to minimize the liabilities arising from the
problem, which is the essence of mitigation of damages. Rubin weighed the consequences
to be avoided and assessed its overall exposure to liability at approximately $147,000
arising from Mr. Morris’s failure to alert it to the title defect.9 By contrast, Rubin negotiated
a settlement with CNX that was much less expensive. Based on these facts, we find that
Rubin’s decision to settle the matter with CNX instead of pursuing litigation on what it
believed to be an unmeritorious affirmative defense of adverse possession was mitigation
of damages. “Many settlements are a reasonable response to a difficult situation created by
another’s negligence.” Flint v. Hart, 917 P.2d 590, 596 (Wash. Ct. App. 1996).
9
Rubin contends it was facing approximately $30,000 in plugging expenses to
abandon the well, $17,000 in royalty payments that the owner would have demanded, and
approximately $100,000 of lost profits owed to the working interest owners of the well.
Rubin also claims it would have lost its own investment in producing and operating the
well.
14
The flaw in Mr. Morris’s argument is that it is built on the faulty premise that
Rubin’s adverse possession claim would come without cost. However, Rubin’s proactive
settlement not only eliminated the risk of a much larger judgment against it, the settlement
also removed from the equation the certainty of litigation costs and delays of production.
“[T]he mitigation rule does not require plaintiff to grasp vainly for twigs while drowning
in flood-waters of defendant’s creation.” Smith, 437 S.E.2d at 508; see also Covino v. Peck,
559 A.2d 868, 872 (N.J. Super. Ct. App. Div. 1989) (finding “as a matter of law,” plaintiff
was not required to institute action in an effort to mitigate damages; “wrongdoer should
not be permitted to avoid real damages by raising an issue made necessary by his very
wrong.”).
Accordingly, we find that Rubin is entitled to recover the damages it incurred
by settling the claims of CNX. See McCormick Int’l USA, 277 P.3d at 371 (“Where an
injured party takes steps to mitigate the damages caused by another, she is entitled to the
costs she reasonably incurs in avoiding those damages.”); Comment Note – Duty to
Mitigate Damages, 81 A.L.R. 282 (Originally published in 1932) (“A party has an
obligation to take such steps as will reasonably tend to minimize damages occasioned by
breach of contract or by tort, and such party is entitled to recover costs reasonably incurred
in minimizing such damages[.]”).
15
B. Antero Damages
Rubin also seeks damages of $246,000 in lost profits it suffered when the
Antero deal was cancelled.10 Rubin argues the link between Rubin’s loss of the Antero
purchase agreement and Mr. Morris’s negligence is direct and certain; the fundamental
purpose for which he was hired was defeated when Mr. Morris failed to discover the
declaration of pooling. Rubin maintains that but for Mr. Morris’s negligence, it would have
exercised its contractual right to demand that WVE cure the defect or substitute
replacement property. To arrive at the opposite conclusion, Rubin asserts the circuit court
misapplied this Court’s analysis in Keister, a case involving very different facts. Finally,
Rubin argues the circuit court erred in finding the Antero damages were speculative; it was
not claiming unproven lost profits based on a contention that it would have been able to
sell the leasehold to a hypothetical purchaser. Instead, Rubin’s loss of profits claim was
based on evidence of an actual offer from Antero.
Mr. Morris counters that pursuant to Keister, Rubin is not entitled to recover
its claimed Antero damages because it is not Mr. Morris’s fault that Rubin did not acquire
the Marcellus Shale rights to the 120-acre tract. Mr. Morris also maintains that Rubin
cannot prove its entitlement to the Antero lost profit damages with reasonable certainty
because it would be wholly speculative to now conclude that Rubin would have exercised
10
This sum includes $216,000 Antero offered to pay Rubin for its right to produce
gas from the Marcellus shale underlying the property, plus $30,000.00 as the present value
of those overriding royalties.
16
its contractual right of substitution with WVE and acquired property that would have
secured such an offer from Antero. 11
In Keister, the plaintiffs were purchasers of real property which purportedly
included both the surface and the mineral rights. The plaintiffs filed a negligence action
against the attorney, Mr. Talbott, who overlooked a prior out-conveyance of mineral rights
during his title search and argued they were entitled to recover the value of the coal under
the property or of the profits they could have made from extracting it. 182 W.Va. at 748,
391 S.E.2d at 898. This Court disagreed and held that the plaintiffs failed to make a prima
facie showing that the damage they asserted below – loss of the right to the coal underlying
their property – was the direct and proximate result of the negligence of the attorney. Id. at
751, 391 S.E.2d at 901. We explained that
at the time Mr. Talbott undertook the title search, the grantor,
Mrs. Brown, had no title to the coal under her property. Had
Mr. Talbott correctly examined the title, his discovery of the
prior outconveyance would not have altered that fact. Thus, the
plaintiffs were not deprived of the coal rights as a proximate
result of Mr. Talbott’s negligence. Consequently, the
plaintiffs’ damages for the loss of their bargain, i.e., the failure
to acquire ownership of the coal, cannot be charged against Mr.
11
Mr. Morris also states that Rubin is entitled to no damages because the income
generated from the well exceeded the price Rubin paid for the leasehold. See Keister, 182
W.Va. at 749-50, 391 S.E.2d at 899-900 (“damages are ordinarily determined by
subtracting the value of the property actually received from the purchase price paid.”). We
reject this argument because it overly simplifies the issues at hand and ignores the fact that
Rubin faced considerable financial liability for its unauthorized drilling of this well.
17
Talbott. What they did lose as a result of his negligence was
the opportunity to rescind the purchase contract.
Id., at 750, 391 S.E.2d at 900 (emphasis added, footnote omitted).
Keister is factually distinguishable from the instant case. Here, Rubin lost
more than the opportunity to rescind its purchase agreement with WVE. Relying on Mr.
Morris’s faulty title opinion, Rubin lost its valuable contractual right to demand that WVE
either cure the title defect to the 120-acre tract (i.e., acquire the leasehold estate) or
substitute it with suitable replacement property. Consequently, Rubin has demonstrated
that but for Mr. Morris’s negligence, it would have realized the proceeds of Antero’s offer
to produce gas from the Marcellus Shale either from the 120-acre tract (had the title defect
been cured) or the replacement leasehold.
This Court has long held that loss of profits may be recoverable in tort
actions. Hardman Trucking, Inc. v. Poling Trucking Co., Inc., 176 W.Va. 575, 579, 346
S.E.2d 551, 555 (1986). Nonetheless, “the loss of profits must be established with
reasonable certainty and not be speculative or conjectural in character or amount. Franklin
v. Pence, 128 W.Va. 353, 36 S.E.2d 505 (1945).” Melbourne Bros. Constr. Co. v. Pioneer
Co., 181 W.Va. 816, 821, 384 S.E.2d 857, 862 (1989); see also Bridgeport Harbour Place
I, LLC v. Ganim, 30 A.3d 703, 722 (Conn. App. Ct. 2011) (recognizing damages for lost
profits in tort action may be difficult to prove with “exactitude” and finding such damages
are recoverable only to extent evidence affords sufficient basis for estimating their amount
18
with reasonable certainty). Application of these principles in a legal malpractice action
does not make an attorney an insurer of pie-in-the-sky expectations of the client. Rather,
this tenet simply operates to restore the client to the economic position that he or she would
be in but for the attorney’s negligence. See e.g., Roberts v. Holland & Hart, 857 P.2d 492,
497 (Colo. App. 1993) (holding claim for lost profits may be recoverable in legal
malpractice action when traceable to and direct result of attorney’s negligence); Sterling
Radio Stations, Inc. v. Weinstine, 765 N.E.2d 56, 62 (Ill. App. Ct. 2002) (“The legal
malpractice action places the plaintiff in the same position he or she would have occupied
but for the attorney’s negligence.”). Applying these principles to the instant action, we find
that Rubin is entitled to recover the Antero damages because it established these lost profits
with reasonable certainty. 12
IV. CONCLUSION
For the above-stated reasons, we find there is no genuine issue of material
fact and judgment for Rubin should be entered as a matter of law. Accordingly, we reverse
the circuit court’s order of January 6, 2015, which entered summary judgment in favor of
12
To the extent Mr. Morris argues that we should not suppose what actions Rubin
would have taken because that inquiry is inherently speculative, we remind him that it is
his carelessness that necessitates the very exercise of examining “what would have
happened in a world that did not include the defendant’s negligence.” Lawrence W.
Kessler, Alternative Liability in Litigation Malpractice Actions: Eradicating the Last
Resort of Scoundrels, 37 San Diego L. Rev. 401, 408 (2000).
19
Mr. Morris and remand this case with instructions to enter summary judgment in favor of
Rubin in the amount of $278,455.
Reversed and remanded.
20