Minnesota Lawyers Mutual Insurance v. Batzli

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1684
MINNESOTA LAWYERS MUTUAL INSURANCE COMPANY,
Plaintiff - Appellant,
v.
TERRENCE RAYMOND BATZLI; BATZLI WOOD & STILES, PC,
Defendants - Appellees.
No. 10-1839
MINNESOTA LAWYERS MUTUAL INSURANCE COMPANY,
Plaintiff - Appellant,
v.
TERRENCE RAYMOND BATZLI; BATZLI WOOD & STILES, PC,
Defendants - Appellees.
No. 10-1910
MINNESOTA LAWYERS MUTUAL INSURANCE COMPANY,
Plaintiff - Appellee,
v.
TERRENCE RAYMOND BATZLI; BATZLI WOOD & STILES, PC,
Defendants - Appellants.
Appeals from the United States District Court for the Eastern
District of Virginia, at Richmond. Henry E. Hudson, District
Judge. (3:09-cv-00432-HEH)
Argued: May 12, 2011 Decided: August 4, 2011
Before KING, SHEDD, and WYNN, Circuit Judges.
Affirmed by unpublished opinion. Judge Wynn wrote the majority
opinion, in which Judge King joined. Judge Shedd wrote a
dissenting opinion.
ARGUED: Danny Mark Howell, SANDS ANDERSON, PC, McLean, Virginia,
for Minnesota Lawyers Mutual Insurance Company. William F. D.
Gallalee, WILLIAMS MULLEN, Richmond, Virginia, for Terrence
Raymond Batzli and Batzli Wood & Stiles, PC. ON BRIEF: Michael
T. Marr, Jeffrey H. Geiger, Mikhael D. Charnoff, Douglas A.
Winegardner, SANDS ANDERSON, PC, McLean, Virginia, for Minnesota
Lawyers Mutual Insurance Company. Harold E. Johnson, WILLIAMS
MULLEN, Richmond, Virginia, for Terrence Raymond Batzli and
Batzli Wood & Stiles, PC.
Unpublished opinions are not binding precedent in this circuit.
2
WYNN, Circuit Judge:
When reviewing the denial of a post-verdict motion for
judgment as a matter of law, we view the evidence in the light
most favorable to the party that prevailed at trial and will
affirm the denial of the motion “unless we conclude that the
jury lacked ‘a legally sufficient evidentiary basis’” to render
the challenged verdict. Sloas v. CSX Transp. Inc., 616 F.3d
380, 392 (4th Cir. 2010) (quoting King v. McMillan, 594 F.3d
301, 312 (4th Cir. 2010)). In this case, the district court
denied a motion for judgment as a matter of law, made by
Minnesota Lawyers Mutual Insurance Company (“Minnesota Mutual”),
that challenged the jury’s verdict that Minnesota Mutual
breached its professional liability insurance contract by
refusing to defend Terrence Batzli, a lawyer, and Batzli Wood &
Stiles, P.C., his law firm (collectively “the insureds”),
against a malpractice suit brought by one of Batzli’s former
clients. Because there was sufficient evidence in the record
for a reasonable jury to conclude that Minnesota Mutual breached
the contract, we affirm.
I.
A.
In November 2004, Richard J. Chasen (“Richard Chasen”)
hired Terrence Batzli (“Batzli”) of the law firm Batzli Wood &
3
Stiles, P.C., (“Batzli Wood”) to represent him in his divorce
from Karen Chasen. As part of that representation, Batzli
engaged in property settlement negotiations with Karen Chasen’s
attorney, Murray Janus (“Janus”).
Richard Chasen had various degrees of ownership in a number
of businesses, including Chasen Properties, LLC, (“Chasen
Properties”), a family business in which Richard Chasen, Karen
Chasen, and their three children each owned a 20% interest. In
their answers to interrogatories, both Richard and Karen Chasen
indicated a belief that Karen Chasen’s interest in Chasen
Properties was marital property. Richard Chasen was
uncomfortable with Karen Chasen’s continued ownership of 20% of
Chasen Properties, particularly because that entity owned the
building housing N. Chasen & Son, Inc., Richard Chasen’s largest
business. Accordingly, Richard Chasen advised Batzli that he
wanted to obtain Karen Chasen’s interest in Chasen Properties
during the settlement negotiations.
On October 27, 2005, Batzli sent Janus a letter with a
settlement proposal. After proposing Karen Chasen’s retention
of certain assets such as the marital home and her current
automobile, the document proposed the transfer to Richard Chasen
of Karen Chasen’s interests in “JACKAN, Chasen Properties, the
Chasen Family Limited Partnership, and her interest in all other
4
marital assets.” J.A. 487. 1 The letter also proposed that
Richard Chasen would pay Karen Chasen a $345,000 lump sum in
addition to a series of installment payments totaling $657,000.
In response, Janus sent Batzli a letter on December 29,
2005, stating points of agreement as well as certain
counterproposals. Importantly, the letter proposed that instead
of transferring her interests in the Chasen Family Limited
Partnership and JACKAN to Richard Chasen, Karen Chasen would
transfer those interests to the couple’s children in equal
percentages. Karen Chasen also rejected the proposed payment
structure and suggested that Richard Chasen instead pay her a
lump sum of $500,000. The letter did not mention the transfer
of Karen Chasen’s interest in Chasen Properties, and in its
conclusion Janus wrote, “I believe this would resolve all issues
between the parties.” J.A. 491.
Batzli responded via letter on January 4, 2006, suggesting
that Richard Chasen would buy Karen Chasen’s interests in the
Chasen Family Limited Partnership and JACKAN, but making no
mention of Chasen Properties. Ultimately, Richard Chasen
decided not to buy those interests and, on January 9, 2006,
Batzli sent a letter to Janus stating, “[Richard] will agree,
1
Citations herein to “J.A. __” refer to the contents of the
Joint Appendix filed by the parties in this appeal.
5
with regard to Karen’s interest in the Chasen Family Limited
Partnership and JACKAN, that Karen’s interest will simply be
transferred to the children.” J.A. 109. Batzli did not mention
Chasen Properties in this correspondence either.
Notwithstanding, Batzli believed he had negotiated a deal
under which Karen Chasen would transfer her interest in Chasen
Properties to Richard Chasen. However, Batzli drafted an
Agreement and Stipulation (“the Agreement”) which called for the
transfer of Karen Chasen’s interests in JACKAN and the Chasen
Family Limited Partnership to the children. Despite Batzli’s
intention to draft the Agreement so that Karen Chasen’s interest
in Chasen Properties would be transferred to Richard Chasen, he
failed to do so. As drafted, the Agreement indicated that
Richard Chasen would retain “[h]is interest in Chasen
Properties, LLC” instead of “their interest” in the business.
J.A. 119. Batzli and Richard Chasen both reviewed the document,
and neither noticed the omission before Richard Chasen and Karen
Chasen signed the Agreement on January 11, 2006. 2
2
Richard Chasen would later testify that when he signed the
document, he believed that Karen Chasen’s interest in Chasen
Properties was supposed to transfer to him under the Agreement.
He based this belief on the “initial instructions” given to
Batzli upon his retention as counsel “as well as the previous
negotiations that had gone back and forth between Mr. Batzli and
Mr. Janus.” J.A. 358.
6
Thereafter, Batzli sent Janus a follow-up document for
Karen Chasen to sign to affect the transfer of her 20% ownership
in Chasen Properties to Richard Chasen. Recognizing that the
Agreement did not address Karen Chasen’s interest in Chasen
Properties, Janus responded that his client had not agreed to
such a transfer. Nonetheless, Janus stated that Karen Chasen
would be willing to transfer her interest in Chasen Properties
to the couple’s children as she had done, pursuant to the
Agreement, with respect to her interests in JACKAN and the
Chasen Family Limited Partnership. Thereafter, Batzli called
Janus, who reiterated that Karen Chasen never intended to
transfer her interest in Chasen Properties to Richard Chasen.
Janus further asserted that Karen Chasen’s interest was separate
property, as it had been gifted to her individually by Richard
Chasen’s parents.
Having realized his drafting omission, Batzli discussed
various options with Richard Chasen. Richard Chasen indicated
that he was unwilling to accept Karen Chasen’s offer to transfer
her interest in Chasen Properties to the children. Batzli and
Richard Chasen also discussed the option of moving to set aside
the Agreement on the theory that there was not a meeting of the
minds. Richard Chasen declined to pursue that option because he
considered the Agreement favorable to him even without the
7
transfer of Karen Chasen’s 20% interest in Chasen Properties. 3 A
third option was to move for correction of the Agreement on the
grounds that Batzli had made a scrivener’s error when he drafted
the Agreement. Richard Chasen chose the third option.
On August 24, 2006, at his client’s direction, Batzli filed
a motion 4 in the Circuit Court of the City of Richmond, Virginia,
seeking correction of a scrivener’s error “[p]ursuant to
3
Under the Agreement, Richard Chasen received all of his
interest in N. Chasen & Son, Inc., the value of which had
appreciated by some $2 million during the marriage. Janus had
expressed to Batzli Karen Chasen’s position that the business
was therefore “hybrid property” and she was entitled to a
portion of the appreciation. See Va. Code Ann. § 20-
107.3(A)(3)(a) (2008) (“In the case of the increase in value of
separate property during the marriage, such increase in value
shall be marital property . . . to the extent that marital
property or the personal efforts of either party have
contributed to such increases, provided that any such personal
efforts must be significant and result in substantial
appreciation of the separate property.”). Richard Chasen told
Batzli he did not want to risk the possibility that a divorce
court, identifying this increase as marital property, might give
a portion to Karen Chasen. By keeping the Agreement in effect,
Richard Chasen hoped to avoid this possibility. See id. § 20-
107.3(I) (“Nothing in this section shall be construed to prevent
the affirmation, ratification and incorporation in a decree of
an agreement between the parties pursuant to §§ 20-109 and 20-
109.1.”).
4
Batzli initially did not charge Richard Chasen for the
work done in preparing, drafting, or arguing the motion; Batzli
claimed that he gave Richard Chasen “courtesy discounts” for the
purpose of client relations. J.A. 289. Later, Batzli sent a
bill for a month’s worth of work, asking Chasen if he would pay
half the amount on the theory that the error was a “joint
mistake,” but Batzli ultimately accepted no money for that work
either. J.A. 292.
8
Virginia Code § 8.01-428(B).” 5 J.A. 462. The motion asked the
court to change the Agreement to say that Richard Chasen would
receive “their interest” in Chasen Properties instead of only
“his interest.” Essentially, the motion asserted that Karen
Chasen’s silence with respect to the portion of the October 27,
2005 proposal that mentioned Chasen Properties constituted her
assent to the transfer of her interest in the business to
Richard Chasen. However, the court found that there was no
evidence that Karen Chasen ever agreed to transfer her 20%
interest in Chasen Properties. Moreover, the court held that
Karen Chasen’s silence was insufficient to indicate her
agreement to the proposed transfer. See Va. Farm Bureau Mut.
Ins. Co. v. Hodges, 238 Va. 692, 695, 385 S.E.2d 612, 613 (1989)
(“A binding contract is not formed until the offeree
communicates an acceptance to the offeror.”). Accordingly, the
court denied the motion to correct the alleged scrivener’s
error.
Thereafter, the Court of Appeals of Virginia affirmed the
Circuit Court’s denial of Richard Chasen’s scrivener’s error
motion, stating “[t]here is no evidence in this record to
5
This statute permits a court to correct “[c]lerical
mistakes in all judgments or other parts of the record and
errors therein arising from oversight or from an inadvertent
omission . . . .” Va. Code Ann. § 8.01-428(B) (2008).
9
suggest a meeting of the minds (i.e., a contract—offer and
acceptance) over wife’s relinquishment of her interest in Chasen
Properties. As the trial court properly noted, wife’s silence
on this issue cannot be found to be an acceptance of husband’s
offer.” Chasen v. Chasen, No. 0004-07-2, 2008 WL 2092260 at *4
(Va. Ct. App. May 20, 2008). 6
B.
Months after the decision by the Court of Appeals of
Virginia, Batzli Wood renewed its Professional Liability Policy,
which was issued by Minnesota Mutual. 7 The renewed policy ran
from October 1, 2008 to October 1, 2009. The policy provided
coverage for any “act, error, or omission of the INSURED or a
person for whose acts the INSURED is legally responsible” 8 that
occurred “(1) during the POLICY PERIOD; or (2) prior to the
POLICY PERIOD and on or after the PRIOR ACTS RETROACTIVE DATE,
if the INSURED had no knowledge of facts which could reasonably
6
There were two arguments on appeal. One concerned the
denial of the scrivener’s error motion. The other asserted that
the trial court erred in awarding Karen Chasen $10,000 per month
in spousal support; the latter issue has no bearing on this
appeal. Chasen, 2008 WL 2092260 at *1.
7
Minnesota Mutual had insured Batzli Wood and Batzli
against malpractice since 2005.
8
While Batzli Wood was the “named insured,” the policy made
clear that Batzli was himself, as an employee acting on behalf
of Batzli Wood, an “insured” as well.
10
support a CLAIM at the effective date of this policy.” 9 J.A.
563. Under the policy, the insured was required to “give
immediate written notice” to Minnesota Mutual “in the event of a
CLAIM.” J.A. 568. The policy stated that a “claim” is made
whenever “an act, error or omission by any INSURED occurs which
has not resulted in a demand for DAMAGES but which an INSURED
knows or reasonably should know, would support such a demand.”
J.A. 563. Coverage under the policy was explicitly conditioned
on compliance with the notice requirement.
On January 8, 2009, Richard Chasen filed a malpractice suit
against Batzli and Batzli Wood in the Circuit Court of Henrico
County, Virginia, based on Batzli’s omission in drafting the
Agreement. After receiving a “courtesy copy” of the complaint
on or about January 9, 2009, Batzli gave notice of the claim to
Minnesota Mutual via letter on January 14, 2009. Minnesota
Mutual responded by denying coverage because Batzli failed to
comply with the policy’s notice requirement. 10 Batzli was
9
Here, all relevant conduct related to Batzli’s
representation of Richard Chasen took place prior October 1,
2008 but after the prior acts retroactive date which, in the
case of Batzli, was the date on which he “first entered the
private practice of law.” J.A. 559.
10
Because both Batzli Wood and Batzli fell under the
policy’s definition of an “insured,” the notice requirement
could have been triggered by knowledge possessed by either
entity. However, there is no evidence that Batzli Wood had
knowledge of any facts, other than those known to Batzli, which
(Continued)
11
formally served with the Chasen complaint on June 29, 2009.
Batzli again notified Minnesota Mutual of the claim, but the
insurance company once again denied coverage.
On July 9, 2009, Minnesota Mutual filed an action in
federal court in the Eastern District of Virginia seeking a
declaratory judgment that it was not required to defend the
Chasen malpractice action. Minnesota Mutual asserted that, at
the latest, when Batzli filed the scrivener’s error motion he
was aware of facts that he knew, or should have known, would
support a demand for damages. On August 5, 2009, Batzli filed
an answer and counterclaim. Under the counterclaim Batzli
sought a declaratory judgment that Minnesota Mutual was
obligated to defend against the Chasen malpractice suit and
indemnify the insured in the event of an unfavorable judgment in
the malpractice case. Moreover, Batzli asserted a legal claim
for breach of contract based on Minnesota Mutual’s denial of
coverage.
The parties filed cross-motions for summary judgment. The
district court denied the cross-motions, reasoning that there
was “a genuine factual dispute between the parties as to whether
it was reasonable for Batzli to anticipate a claim by Mr.
would be relevant to a demand for damages based on Batzli’s
representation of Richard Chasen.
12
Chasen.” J.A. 170. The district court granted Batzli’s request
for a jury trial on the breach of contract counterclaim and
stated that the declaratory judgment claims would be decided
after that trial.
Trial began on March 1, 2010, and a central issue was
whether Batzli’s notice to Minnesota Mutual was too late to
comply with the policy’s notice provision. Batzli argued that
he complied with the notice provision by notifying Minnesota
Mutual when he first received the complaint and again after
receipt of formal service, so Minnesota Mutual’s denial of
coverage constituted a breach of contract. Minnesota Mutual
argued that Batzli had sufficient knowledge to trigger the
contract’s notification requirement well before receipt of the
complaint and Batzli’s failure to notify Minnesota Mutual under
those circumstances constituted a failure to satisfy a condition
placed on coverage. During the trial, Minnesota Mutual made two
motions for judgment as a matter of law (one after Batzli rested
his case and another at the close of all evidence); the district
court denied both. Ultimately, the jury found for Batzli and
awarded damages of $8,400.
Thereafter, Minnesota Mutual filed a renewed motion for
judgment as a matter of law under Rule 50(b) of the Federal
Rules of Civil Procedure. First, Minnesota Mutual contended
that Batzli failed to present sufficient evidence to establish
13
that the attorney’s fees sought were reasonable and necessary,
so Batzli could not state a prima facie case for breach of
contract based on actual damages. Second, Minnesota Mutual
argued that Batzli’s failure to plead nominal damages barred any
attempt to establish a prima facie case by reliance thereon.
Finally, Minnesota Mutual argued that Batzli failed to prove
that he was entitled to coverage because there was insufficient
evidence that the policy’s notice requirement had been
satisfied.
The district court agreed with Minnesota Mutual’s first
argument, reasoning that “Batzli’s failure to provide evidence
of the reasonableness of the fees, such as the nature of the
services performed, the length of such services, and the
applicable rates for such representation, left the jury with
insufficient evidence to justify the damages awarded.” Minn.
Lawyers Mut. Ins. Co. v. Batzli, No. 3:09CV432-HEH, 2010 WL
2024487 at *4 (E.D. Va. May 19, 2010). Accordingly, the court
set aside the award of attorney’s fees. However, because
Minnesota Mutual failed to convince the court that “nominal
damages must be specifically plead or that a court is foreclosed
from inferring such damages under the facts at hand,” the court
rejected Minnesota Mutual’s second argument. Id. at *5. The
court awarded nominal damages and deemed this sufficient to
14
satisfy the damage element of Batzli’s prima facie case for
breach of contract.
Next, the district court considered Minnesota Mutual’s
argument that Batzli’s notice of a claim by Richard Chasen was
untimely as a matter of law. It was uncontested that Karen
Chasen would not have agreed to transfer her interest in Chasen
Properties to Richard Chasen. The court opined that this fact,
combined with Richard Chasen’s apparent overall satisfaction
with the Agreement, was enough to support the jury’s conclusion
that a reasonable person in Batzli’s position would not have
thought that his drafting omission would support a demand for
damages. Additionally, the court noted that Richard Chasen
never indicated an intention to sue, promptly paid attorney’s
fees, and maintained a positive attorney-client relationship
with Batzli during the divorce proceedings. Ultimately, the
court determined that there was sufficient evidence to permit a
reasonable jury to find in Batzli’s favor, so it denied
Minnesota Mutual’s Rule 50(b) motion. Minnesota Mutual
appealed. 11
11
Minnesota Mutual filed its notice of appeal of the denial
of its 50(b) motion on June 18, 2010. On July 12, 2010, the
district court entered a Final Order declaring that Minnesota
Mutual has “an obligation to provide a defense and to indemnify
against all claims asserted” in the Chasen malpractice suit.
J.A. 767. Minnesota Mutual filed a notice of appeal of the
(Continued)
15
On appeal, Minnesota Mutual argues that the district court
considered improper evidence when concluding that a jury could
find in favor of Batzli on the notice issue. Minnesota Mutual
also contends that Batzli failed to establish the element of
damages necessary for a prima facie case of breach of contract
and that the court erred when determining that nominal damages
satisfied that element. Batzli filed a cross-appeal, arguing
that the district court erred in reducing the damage award from
$8,400 to a nominal award of $1 because there was sufficient
evidence to support the jury’s award of actual damages.
II.
We review the denial of a renewed motion for judgment as a
matter of law de novo. Sloas, 616 F.3d at 392. “On appeal, we
view the evidence in the light most favorable to the prevailing
party and will affirm the denial of a Rule 50(b) motion unless
we conclude that the jury lacked ‘a legally sufficient
evidentiary basis’ to find in that party’s favor.” Id. (quoting
McMillan, 594 F.3d at 312). “[W]e are not permitted to retry
factual findings or credibility determinations reached by the
jury. Rather, we are to assume that testimony in favor of the
Final Order on July 21, 2010. Both of Minnesota Mutual’s
appeals were consolidated into the instant case.
16
non-moving party is credible, ‘unless totally incredible on its
face,’ and ignore the substantive weight of any evidence
supporting the moving party.” Cline v. Wal-Mart Stores, Inc.,
144 F.3d 294, 301 (4th Cir. 1998) (quoting Duke v. Uniroyal,
Inc., 928 F.2d 1413, 1419 (4th Cir. 1991)). Ultimately, “[i]f
reasonable minds could differ about the verdict, we are obliged
to affirm.” ABT Bldg. Prods. Corp. v. Nat’l Union Fire Ins. Co.
of Pittsburgh, 472 F.3d 99, 113 (4th Cir. 2006).
Mindful of this deferential standard of review, we must
determine whether there was sufficient evidence presented at
trial to allow a reasonable jury to conclude that Minnesota
Mutual breached its contract with Batzli Wood and Batzli by
denying coverage. To establish a claim for breach of contract
under Virginia law, 12 a plaintiff must demonstrate: “(1) ‘a legal
obligation of a defendant to the plaintiff,’ (2) ‘a violation or
breach of that right or duty,’ and (3) ‘a consequential injury
or damage to the plaintiff.’” Westminster Investing Corp. v.
12
Because this case commenced in the Eastern District of
Virginia, was based on diversity jurisdiction, and concerned a
dispute over the coverage provided by an insurance policy issued
in Virginia, we apply Virginia law. See Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941) (holding that a
federal court sitting in diversity jurisdiction must apply the
choice-of-law principles of the State in which the federal court
is located); Buchanan v. Doe, 246 Va. 67, 70, 431 S.E.2d 289,
291 (1993) (“[T]he law of the place where an insurance contract
is written and delivered controls issues as to its coverage.”).
17
Lamps Unlimited, Inc., 237 Va. 543, 546, 379 S.E.2d 316, 317
(1989) (quoting Caudill v. Wise Rambler, 210 Va. 11, 13, 168
S.E.2d 257, 259 (1969)); cf. Filak v. George, 267 Va. 612, 619,
594 S.E.2d 610, 614 (2004) (“The elements of a breach of
contract action are (1) a legally enforceable obligation of a
defendant to a plaintiff; (2) the defendant’s violation or
breach of that obligation; and (3) injury or damage to the
plaintiff caused by the breach of obligation.”).
Here, the “obligation” in question was Minnesota Mutual’s
duty to defend against the malpractice suit brought by Richard
Chasen. However, because the notice requirement in the policy
operated as a condition to coverage, Minnesota Mutual argues
that it owed no legally enforceable duty to defend.
A. Proof of Minnesota Mutual’s Breach
To address Minnesota Mutual’s contention, we must determine
whether a reasonable jury could have concluded that the insured
satisfied the policy’s notice requirement. Under the insurance
contract, Batzli was required to “give immediate written notice”
to Minnesota Mutual whenever “an act, error or omission by any
INSURED occurr[ed] which ha[d] not resulted in a demand for
DAMAGES but which an INSURED [knew] or reasonably should [have
known], would support such a demand.” J.A. 563 Virginia courts
have consistently held that, to be entitled to coverage, an
18
insured must “substantially comply” with such notice provisions.
See, e.g., Craig v. Dye, 259 Va. 533, 537, 526 S.E.2d 9, 12
(2000). 13
Of course, in this case, notice was eventually supplied to
Minnesota Mutual. However, under the policy, the duty to notify
Minnesota Mutual arose whenever the insured did something that
he knew, or reasonably should have known, would support a demand
for damages. Thus, we must consider whether there was
sufficient evidence in the record to support a jury
determination that, prior to learning that he was a defendant in
the malpractice suit, Batzli neither knew, nor reasonably should
have known, that deficiencies in his representation of Richard
Chasen would support a claim for damages.
Minnesota Mutual attacks the district court’s conclusion
that there was sufficient evidence to support the jury’s
13
As stated in Atlas Ins. Co. v. Chapman, 888 F.Supp. 742(E.D. Va. 1995),
[t]he rationale behind the rule requiring compliance with
the notice provision is compelling. Absent the requirement of
prompt notice by the insured of all accidents and occurrences
which could implicate the policy, the insurer is at the mercy of
its insured’s willingness to reveal such potential claims. As
the Virginia Supreme Court has made plain, notice provisions are
designed to afford the insurer the opportunity to make a timely
investigation of all circumstances surrounding the accident and
to prepare an adequate defense if necessary on behalf of the
insured.
Id. at 745 (citing North River Ins. Co. v. Gourdine, 205
Va. 57, 62, 135 S.E.2d 120, 123 (1964)).
19
determination, arguing that the court erred as a matter of law
by improperly basing its decision on evidence that had no
bearing on the issue. Specifically, Minnesota Mutual asserts
that the district court erred by basing its decision on 1)
Richard Chasen’s failure to threaten suit and/or Batzli’s
subjective belief that Richard Chasen would not sue him; 2)
Batzli’s belief that he enjoyed a good-attorney client
relationship with Richard Chasen; and 3) whether a claim brought
by Richard Chasen would be meritorious.
To the extent that Minnesota Mutual argues that the
district court erred by relying on Richard Chasen’s subjective
impressions of the circumstances, Minnesota Mutual misreads the
court’s opinion. To begin, the district court was well aware
that the test employed is an objective one, and quoted the
following from Dan River, Inc. v. Commercial Union Ins. Co., 227
Va. 485, 317 S.E.2d 485 (1984):
Failure to give timely notice will not be excused when
the insured only subjectively concludes that coverage
under the policy will not be implicated. Such a policy
provision requires the insurer to be notified
whenever, from an objective standpoint, it should
reasonably appear to the insured that the policy may
be involved.
Id. at 489, 317 S.E.2d at 487. Moreover, Minnesota Mutual
misinterprets the basis of the district court’s decision. The
court noted that the evidence established that Karen Chasen
would not have agreed to transfer her interest in Chasen
20
Properties to Richard Chasen. The court stated that “[t]his
uncontested fact, coupled with Chasen’s apparent overall
satisfaction with the other favorable terms of the property
settlement Agreement, provided a legally sufficient basis for
the jury to conclude that Batzli did not reasonably believe that
his drafting error could support a claim for damages.” Batzli,
2010 WL 2024487 at *6. In short, Minnesota Mutual is correct
that a court cannot rely on an insured’s subjective belief that
his client will not sue, but is incorrect in asserting that
subjective beliefs formed the foundation of the district court’s
judgment.
Minnesota Mutual also contends that the district court
erred by considering the likelihood of Richard Chasen’s success
on the merits in the event that a claim were brought. Once
again, Minnesota Mutual mischaracterizes the district court’s
analysis. The court did not opine that Batzli did not need to
notify Minnesota Mutual because any foreseeable potential claim
would lack merit; instead, it determined that there was no
reasonably foreseeable potential claim. The distinction is
perhaps confusing because both conclusions could potentially
result from the determination that Batzli’s error caused no
damage to his client. See Campbell v. Bettius, 244 Va. 347,
352, 421 S.E.2d 433, 436 (1992) (“In a legal malpractice action,
the fact of negligence alone is insufficient to support a
21
recovery of damages. The client must prove that the attorney’s
negligence proximately caused the damages claimed.”).
Like the district court, we are unconcerned with the
ultimate merits of a potential claim. However, we also conclude
that a reasonable belief that an insured’s error caused no harm
to the insured’s client is relevant to whether an objectively
reasonable person in the insured’s position would expect his
error to give rise to a claim for damages. See Commercial
Underwriters Ins. Co. v. Hunt & Calderone, P.C., 261 Va. 38, 540
S.E.2d 491 (2001). In Hunt & Calderone, an accountant missed a
filing deadline for one of her clients and knew the error
could potentially result in a loss of a $125,000 tax
credit for the client, but she did not think that a
claim would result because she was told by an
administrator of the government tax credit program
that sufficient funds would likely be available after
all the timely applications had been processed.
Id. at 38, 540 S.E.2d at 492. Further, when told of the error,
the client said he was satisfied with the assurances made by the
government administrator. Id. However, when funds proved
unavailable, the client sued the accountant, who then sought a
defense from her professional liability insurer. The insurer
denied coverage because the accountant had not notified the
insurer when the initial error occurred. The Supreme Court of
Virginia ruled that, on these facts, the accountant was entitled
22
to a defense under the insurance contract. Id. at 44, 540
S.E.2d at 494.
This case is analogous. The evidence demonstrates that
shortly after realizing his drafting error, Batzli learned of
facts supporting a reasonable belief that no harm had been done
to his client by the error. To begin, a reasonable jury could
conclude that no damage to Richard Chasen resulted from his
payment of fees for Batzli’s services. See Rutter v. Jones,
Blechman, Woltz & Kelly, P.C., 264 Va. 310, 314, 568 S.E.2d 693,
695 (2002) (stating in a malpractice suit arising from lawyer’s
alleged drafting error that “the fee [the client] paid the
defendants for their services was not an injury resulting from
legal malpractice. It was merely the agreed-upon cost of the
service, the consideration given for the contract, and not the
damage or injury arising from the breach of the contract.”). 14
14
Notably, there was no evidence that Richard Chasen’s
payment of Batzli’s legal fees was contingent on Batzli
negotiating the transfer of Karen Chasen’s interest in Chasen
Properties. In any event, a contingent fee arrangement would
arguably have been unenforceable on public policy grounds absent
extenuating circumstances. See Smith v. Ramey, No. 8511, 1988
WL 619384 at *2 (Va. Cir. Ct. 1988) (recognizing prohibition of
“contingent fee contracts in domestic relations cases except in
extraordinary circumstances”); see also 7 Am. Jur. 2d Attorneys
at Law § 260 (2007) (“A fee contract contingent on procuring a
divorce, or contingent in amount on the amount of alimony,
support, or property settlement to be obtained, is against
public policy and void.”).
23
More importantly, Janus told Batzli that Karen Chasen’s
interest in Chasen Properties was separate property that she was
unwilling to transfer to Richard Chasen. Indeed, Karen Chasen
testified that she would not have signed an agreement to such a
transfer. 15 A reasonable jury therefore could have determined
that Batzli could not have anticipated a demand for damages for
failing to procure that which was unprocurable. 16
15
The following excerpt from Karen Chasen’s deposition
testimony, which was presented to the jury, clarifies that Karen
Chasen would not have agreed to transfer her interest in Chasen
Properties to Richard Chasen:
Q: . . . . Prior to signing the agreement—or at any time—
did you ever agree to give your interest in Chasen Properties,
LLC to [Richard] Chasen?
A: No.
. . . .
Q: If you had read this agreement and it had stated that
you had transferred your interest in Chasen Properties, LLC to
[Richard Chasen], would you have signed that agreement?
A: I would not have signed it.
J.A. 391.
16
Additionally, we find no support for the contention that
Batzli’s error harmed Richard Chasen by causing him to pay for
more than he received under the Agreement. Stated differently,
there is no support for the argument that Richard Chasen might
not have been willing to pay as much if he had known that he was
not getting Karen Chasen’s interest in Chasen Properties as part
of the deal. However, the $500,000 that Richard Chasen paid was
first proposed by Karen Chasen, who obviously did not consider
it consideration for her transfer of her interest in Chasen
Properties. Also, the jury heard evidence that “there was no
document or spreadsheet that showed how the 500k [figure] was
arrived at.” J.A. 307. Moreover, Batzli testified that “the
$500,000 was paid to get her to agree to what she ultimately
agreed to.” J.A. 308.
24
Minnesota Mutual argues that evidence of other harm would
have led a reasonable lawyer in Batzli’s position to notify his
insurer. First, Minnesota Mutual contends that Batzli should
have known that his failure to recognize the drafting error kept
him from arguing during the spousal support hearing that Karen
Chasen had additional income-producing separate property.
However, a reasonable jury could instead have focused on Karen
Chasen’s testimony that she never received any money or income
from her 20% interest in Chasen Properties. Minnesota Mutual
also argues that Batzli should have known that his conflict of
interest in pursuing the scrivener’s error motion instead of
seeking to have the Agreement set aside constituted actionable
malpractice. But a reasonable jury could have relied on
evidence showing that Richard Chasen, not Batzli, made the
decision to pursue the scrivener’s error motion.
In addition to evidence supporting a reasonable belief that
there was no loss to the client, there was evidence, as in Hunt
& Calderone, that the client was comfortable with the result,
notwithstanding the professional error. The jury heard evidence
that Richard Chasen rejected the idea of seeking to set aside
the Agreement and renegotiate. Indeed, under the Agreement as
written, Richard Chasen received the full interest in an
arguably joint asset that had appreciated by $2 million during
the marriage. The jury heard testimony that it was more
25
important to Richard Chasen to keep that aspect of the deal
intact than to pursue Karen Chasen’s interest in Chasen
Properties. Further, the jury heard evidence that,
notwithstanding the error, Batzli secured for his client $4
million of a $6 million estate.
Under these circumstances, viewing the evidence in the
light most favorable to Batzli, as we must, we conclude that the
jury had a sufficient evidentiary basis to conclude that Batzli
reasonably thought his drafting error would not result in a
claim until he learned from Richard Chasen that a claim would in
fact be filed, at which point he promptly notified Minnesota
Mutual. Likewise there was sufficient evidence to support the
jury’s conclusion that prior to October 1, 2008, the effective
date of the policy, Batzli had no knowledge of facts that could
reasonably support a demand for damages. Minnesota Mutual was
therefore obligated to provide insurance coverage under the
insurance contract. Because there is no dispute that Minnesota
Mutual subsequently denied coverage, there was also sufficient
evidence in the record to support the jury’s conclusion that
Minnesota Mutual breached that obligation.
B. Proof of Damage to Batzli
Next, Minnesota Mutual maintains that there was
insufficient evidence presented at trial to permit a reasonable
26
jury to conclude that the damage element of a breach of contract
claim had been satisfied. Minnesota Mutual agrees with the
trial court’s determination that actual damages were not proven
to a reasonable degree of certainty. However, Minnesota Mutual
challenges the district court’s determination that an award of
“nominal damages” supported by the evidence at trial was
sufficient to make out a prima facie case for breach of
contract. We find no merit to Minnesota Mutual’s argument.
It stands to reason that Minnesota Mutual’s refusal to
defend the malpractice suit forced Batzli to retain legal
counsel. Moreover, there was evidence that the cost of those
legal services was billed to Batzli. In other words, there was
sufficient evidence to support a determination that there was
“injury or damage to the plaintiff caused by the breach of
obligation.” Filak, 267 Va. at 619, 594 S.E.2d at 614. The
district court awarded nominal damages for that breach.
Significantly, the Virginia Supreme Court has explained that
“[n]ominal damages are those recoverable where a legal right is
to be vindicated against an invasion that has produced no actual
present loss of any kind or where, from the nature of the case,
some injury has been done the amount of which the proofs fail to
show.” News Leader Co. v. Kocen, 173 Va. 95, 107-08, 3 S.E.2d
385, 390 (1939) (quotation omitted); see also 22 Am. Jur. 2d
Damages § 8 (2003) (“The term ‘nominal damages’ describes two
27
types of awards: (1) those damages recoverable where a legal
right is to be vindicated against an invasion that has produced
no actual, present loss of any kind; and (2) the very different
allowance made when actual loss or injury is shown, but the
plaintiff fails to prove the amount of damages.”).
The district court relied on the inferred nominal damages
that result from the violation of the legal rights created by
the contract. Minnesota Mutual correctly argues that such
damages are insufficient to satisfy the third prong of a prima
facie case for breach of contract. However, neither of the
cases on which Minnesota Mutual relies stands for the
proposition that nominal damages can never satisfy the third
element in a Virginia breach of contract claim.
In Orebaugh v. Antonious, 190 Va. 829, 58 S.E.2d 873(1950), the court considered an action by a property owner
alleging that a contractor hired to install a heating system
breached his contract because the heating system failed to
operate properly. Id. at 830, 58 S.E.2d at 873. However, the
evidence also showed that the property owner had since sold the
property with the heater still inoperable. There was no
evidence of the sale price or evidence that the property owner
took less for the property because of the faulty heating system.
The court stated that the plaintiff did not “introduce any
evidence from which it could be determined that she suffered any
28
loss or damage” other than the nominal damages inferred from the
violation of her legal rights under the contract. Id. at 833.
As such, the court held that judgment in favor of the plaintiff
was in error. Id. at 834.
In Bailey v. Potter, No. 1:05c936(JCC), 2006 WL 1582410(E.D. Va. June 5, 2006), the court considered an action brought
by an employee alleging that her employer breached a contractual
duty to review the employee’s leave requests to ensure they were
“properly coded.” 17 Plaintiff alleged that the employer breached
the contract by improperly coding some of her leave time as
“Leave Without Pay” instead of “Office of Worker Compensation
Program Leave Without Pay.” Id. at *3. The court concluded that
“there was no meaningful difference between” the two time codes
and that, consequently, if the leave time was coded as the
plaintiff desired, “Plaintiff would receive no benefit
whatsoever.” Id. The court then rejected the plaintiff’s
assertion that nominal damages inferred from the inconsequential
violation of her legal rights would satisfy the third element of
a breach of contract suit. Id. at *4 (“Essentially, Plaintiff
seeks to eviscerate the “consequential injury or damage” element
17
Although we distinguish Bailey, we also note that, as an
unpublished opinion, it bears no precedential weight that would
necessarily alter our analysis. United States v. Ruhe, 191 F.3d
376, 392 (4th Cir. 1999) (“[U]npublished opinions are not
binding precedent in this circuit.”); see also Local Rule 36(c).
29
of a claim for breach of contract, as nominal damages would
always be inferred upon the allegation of a breach of a binding
agreement.”).
This case is distinguishable from Orebaugh and Bailey
because here, “actual loss or injury is shown, but the plaintiff
fails to prove the amount of damages.” See 22 Am. Jur. 2d
Damages § 8 (2003). Batzli demonstrated that he had to pay
attorney’s fees as a result of Minnesota Mutual’s breach, but
failed to prove that the amount claimed was reasonable. 18 As
such, nominal damages were appropriate. 19 Both Orebaugh and
Bailey involved circumstances where there was no evidence that
any damage (other than the abstract damage caused by violation
of legal rights created by a contract) resulted from the breach
of contract. In other words, both cases held that nominal
damages of the first sort discussed in Kocen cannot support a
18
See infra, Section III.
19
We reject Minnesota Mutual’s contention that Batzli’s
failure to specifically plead nominal damages barred the award
thereof, particularly when the counterclaim asked the court to
award, in addition to the costs and fees incurred in prosecuting
the counterclaim and defending the Chasen malpractice suit,
“such other and further relief as the Court deems just.” [J.A.
76] See Yniguez v. State, 975 F.2d 646, 647 n.1 (9th Cir.
1992)(per curiam)(“Although the plaintiff’s complaint does not
expressly request nominal damages, it did request ‘all other
relief that the Court deems just and proper under the
circumstances.’ That is sufficient to permit the plaintiff to
pursue nominal damages.”).
30
breach of contract action. However, those cases provide no
support for the contention that nominal damages can never
satisfy the damage element of a prima facie case for breach of
contract under Virginia law.
Indeed, in Crist v. Metropolitan Mortg. Fund, Inc., 231 Va.
190, 343 S.E.2d 308 (1986), the court reviewed a breach of
contract action in which the trial court awarded nominal damages
but denied compensatory damages. The court affirmed, stating
“[b]ecause damages, if any, cannot be established with
reasonable certainty, no actual damages can be recovered.
Accordingly, we will affirm the judgment of the trial court
denying compensatory damages but awarding nominal damages of
$100.” Id. at 195, 343 S.E.2d at 311. Crist therefore
contradicts Minnesota Mutual’s contention that a breach of
contract cannot be established absent proof of actual damages,
as well as the contention that nominal damages are insufficient
to satisfy the damage prong of the prima facie case.
In sum, we conclude that there was sufficient evidence
presented to the jury to permit its conclusion that Minnesota
Mutual owed a duty to its insured and that the breach of that
duty caused the insured to suffer damage. Consequently, the
jury had a legally sufficient evidentiary basis to find for the
insured on the breach of contract counterclaim. See Filak, 267
Va. at 619, 594 S.E.2d at 614. Accordingly, we affirm the
31
denial of Minnesota Mutual’s renewed motion for judgment as a
matter of law.
III. Batzli’s Cross Appeal
In his cross appeal, Batzli contends that the district
court erred when reducing the damage award from $8400 to $1 and
argues that the evidence supported the jury’s award of
compensatory damages. Batzli concedes that ruling in his favor
would require our determination that he presented sufficient
evidence to permit a reasonable jury to determine that the
attorney’s fees sought were reasonable and necessary. See Hiss
v. Friedberg, 201 Va. 572, 577, 112 S.E.2d 871, 876 (1960)
(“[W]here a breach of contract has forced the plaintiff to
maintain or defend a suit with a third person, he may recover
the counsel fees incurred by him in the former suit provided
they are reasonable in amount and reasonably incurred.”)
(emphasis added); accord Fidelity Nat’l Title Ins. Co. of N.Y.
v. S. Heritage Title Ins. Agency, 257 Va. 246, 254, 512 S.E.2d
553, 558 (1999).
Minnesota Mutual does not contest the fact that its refusal
to provide coverage under the policy necessitated Batzli’s
independent retention of legal counsel to defend the Chasen
complaint—i.e. that Batzli incurred damages. To support the
contention that the damage award was reasonable, Batzli points
32
to the malpractice complaint which he argues demonstrates the
complexity and high stakes of the case, the fact that the
complaint had been “pending” for a year, 20 and Batzli’s testimony
that he had incurred $8,400 in legal fees for the defense of the
malpractice action. We conclude that such a paltry evidentiary
showing was insufficient as a matter of law to support a
determination that the amount awarded as damages was
“reasonable.”
In Chawla v. BurgerBusters, Inc., 255 Va. 616, 499 S.E.2d
829 (1998), the Supreme Court of Virginia stated:
In determining whether a party [seeking recovery of
attorney’s fees] has established a prima facie case of
reasonableness, a fact finder may consider, inter
alia, the time and effort expended by the attorney,
the nature of the services rendered, the complexity of
the services, the value of the services to the client,
the results obtained, whether the fees incurred were
consistent with those generally charged for similar
services, and whether the services were necessary and
appropriate.
Id. at 623, 499 S.E.2d at 833. In Mullins v. Richlands Nat’l
Bank, 241 Va. 447, 403 S.E.2d 334 (1991), the court said: “In
determining a reasonable fee, the fact finder should consider
such circumstances as the time consumed, the effort expended,
20
Notwithstanding Batzli’s argument to the contrary, the
amount of time that had elapsed since the complaint was filed is
irrelevant to our inquiry given the absence of any evidence
regarding what, if any, actions were taken by Batzli’s lawyers
to defend against the Chasen complaint during that time.
33
the nature of the services rendered, and other attending
circumstances. Ordinarily, expert testimony will be required to
assist the fact finder.” Id. at 449, 403 S.E.2d at 335. 21
Here, there was no testimony regarding how much time
Batzli’s lawyers spent on the defense of the Chasen complaint,
no indication of what services they performed in their
representation of Batzli, and no testimony, expert or otherwise,
regarding the rates charged by lawyers defending malpractice
suits in Virginia. In light of Chawla and Mullins, we conclude
that Batzli’s argument—that $8,400 was per se reasonable in
light of the amount sought in the “complex” malpractice action—
is meritless. See Crist, 231 Va. at 195, 343 S.E.2d at 311. In
short, Batzli had the burden of demonstrating that the
attorney’s fees paid to the lawyers defending the Chasen
complaint were reasonable, and he failed to satisfy that burden.
This allocation of the burden of proof is also dispositive
of Batzli’s second argument. Batzli maintains that because
21
Expert testimony is not necessarily required if lay
testimony can establish the reasonableness of the fee award.
For instance, when a party seeking attorney’s fees submitted
“almost 300 pages of contemporaneous time records detailing the
activities for which fees were sought” and “affidavits of its
attorneys upon the reasonableness of the hourly rates charged
and the accuracy of the time billed,” the court ruled that
expert testimony was not necessary. Tazewell Oil Co., Inc. v.
United Va. Bank, 243 Va. 94, 111-12, 413 S.E.2d 611, 620-21
(1992). No such time records or affidavits were presented in
this case.
34
Minnesota Mutual did not object to the evidence entered in
support of the reasonableness determination, he is foreclosed
from arguing that the amount awarded was unreasonable. However,
applying such a rule would relieve the plaintiff of the burden
of making a prima facie case simply because his opponent was
silent. We decline Batzli’s invitation to so dramatically shift
the burden of proof.
Ultimately, to decide the cross appeal in Batzli’s favor
would require the absurd conclusion that a party establishes the
“reasonableness” of attorney’s fees if (when viewed in the light
most favorable to that party), the evidence shows that the fees
were assessed in a difficult case. However, following Chawla
and Mullins, we conclude that more is required to support a
determination that the attorney’s fees assessed were
reasonable. 22 Because Batzli failed to present evidence to
establish the reasonableness of the attorney’s fees for which he
22
As discussed above, the district court did not rely on
the actual compensatory damages award of $8,400 to confirm
Batzli’s satisfaction of the damage element of a prima face
breach of contract claim. Instead, the court imposed nominal
damages. Indeed, if precisely quantifiable actual damages were
the only basis for finding a breach of contract in this case,
the court would have been compelled to grant Minnesota Mutual’s
motion. See Bennett v. Fairfax Cnty., Va., 432 F.Supp.2d 596,
600 (E.D. Va. 2006) (stating that a court “must enter judgment
as a matter of law if . . . the verdict in favor of the non-
moving party would necessarily be based on speculation and
conjecture.”)(quotation omitted).
35
was to be compensated through the jury’s award of damages, the
district court did not err by setting aside that damage award.
IV.
In sum, while reasonable minds may disagree regarding
whether Batzli should have notified Minnesota Mutual earlier
than he did, even when faced with reasonable disagreement about
the propriety of the verdict, we must affirm the denial of a
renewed motion for judgment as a matter of law. ABT Bldg.
Prods. Corp, 472 F.3d at 113. We conclude that the jury had a
sufficient evidentiary basis to support its conclusion that
Minnesota Mutual breached its insurance contract by refusing to
defend Batzli and Batzli Wood against the Chasen complaint.
Accordingly, we affirm the district court’s denial of Minnesota
Mutual’s motion for judgment as a matter of law. Also, because
the factual determinations necessarily made by the jury in the
trial as to Batzli’s counterclaim are dispositive, we also
affirm the grant of declaratory judgment to Batzli.
AFFIRMED
36
SHEDD, Circuit Judge, dissenting:
Terrence Batzli’s Professional Liability Insurance Policy
with Minnesota Lawyers Mutual does not cover an error made prior
to the liability policy’s date, “which an insured knows or
reasonably should know, would support” a demand for damages.
(J.A. 25.) The majority holds that there was sufficient
evidence for the jury to find that Batzli lacked, or that any
reasonable person in his position would have lacked, such
knowledge under the facts of this case. In my view, Batzli
reasonably should have known, as a matter of law, that he faced
a potential demand for damages from Mr. Chasen. Therefore, with
due respect, I dissent.
As the majority correctly notes, when determining whether
sufficient evidence exists to support a jury verdict, “we may
not substitute our judgment for that of the jury.” Price v.
City of Charlotte, N.C., 93 F.3d 1241, 1249 (4th Cir. 1996).
However, “[w]hile we are compelled to accord the utmost respect
to jury verdicts . . . [we] have a duty to reverse the jury
verdict[] if the evidence cannot support it.” Id. at 1249-1250(internal citations omitted).
The evidence presented in this case cannot support the jury
verdict. The record clearly establishes that Batzli knew he had
committed a significant error and that his error could support a
claim for damages. Batzli believed that there was an agreement
37
between Mr. and Ms. Chasen, pursuant to which Ms. Chasen would
give her 20% interest in Chasen Properties, LLC to Mr. Chasen.
Batzli drafted a property settlement agreement (“the Agreement”)
between Mr. and Ms. Chasen with the intent of ensuring Mr.
Chasen would receive Ms. Chasen’s 20% interest. However, Batzli
admittedly made an error in drafting the Agreement and testified
to this fact before the jury, stating:
And that’s where I made the error. I said “his
interest.” It should have said “their interest” in
Chasen Properties, LLC.
(J.A. 258.) Batzli also admitted his error to Mr. Chasen in a
letter and, consequently, offered to bear the costs of the
action in state court to correct the error. Moreover, upon
realizing his error, Batzli said that he felt sick about it and
had lost sleep over it.
Finally, Batzli knew this error resulted in significant
financial and personal costs for Mr. Chasen. Batzli knew Mr.
Chasen believed the 20% interest was worth $440,000. In
addition to the monetary value, Batzli also knew how important
it was to Mr. Chasen’s business that he receive Ms. Chasen’s 20%
interest. Without that 20% interest, Mr. Chasen stood to lose
control of Chasen Properties, LLC. Mr. Chasen explicitly
expressed this concern to Batzli in a letter, writing:
[W]ith only a 20% ownership on my part, it would be
easy for her and the kids to remove me as
director/manager of chasen properties [sic]. If I own
38
at least 34% . . . it is more difficult for them to
remove me form [sic] that roll [sic] and Karen [Ms.
Chasen] can have no part of the process. I just can
not [sic] have Karen owning part of any entity that I
am part of . . . much less part of my business
location!
(J.A. 461.) Furthermore, in a letter to Batzli’s law partner,
who worked on the case with Batzli, Mr. Chasen wrote that he was
“still in shock that the appeal [to correct the error] failed on
all fronts,” (J.A. 551) and Mr. Chasen did not respond to
Batzli’s request for payment of the attorneys’ fees incurred in
the state court action. Against this factual backdrop, Batzli
should have known that his error would support a demand for
damages. *
Despite these facts, the majority concludes there is
sufficient support for the jury verdict based largely on
evidence that addresses the merits of Mr. Chasen’s malpractice
claim. Such evidence is irrelevant as to whether a reasonable
lawyer could expect a demand for damages. The liability policy
requires only that the insured report an act, error, or omission
*
The majority asserts that Batzli could not reasonably
expect a claim for damages because Mr. Chasen had suffered no
damages. To the contrary, Mr. Chasen was damaged. Mr. Chasen
agreed to the settlement with the understanding that he would be
receiving Ms. Chasen’s 20% interest in Chasen Properties, LLC.
Therefore, Mr. Chasen’s damages are – at a minimum – the
difference between what Mr. Chasen paid for the Agreement and
what he would have paid for a settlement that did not contain
Ms. Chasen’s 20% interest.
39
that would support a demand for damages, not that such a demand
would ultimately be successful.
The majority believes that testimony by Ms. Chasen that she
would never have relinquished her 20% interest supports the jury
verdict. The majority reasons that Mr. Chasen was not damaged
because in a divorce action, Mr. Chasen was not legally entitled
to have this non-marital asset included in a settlement.
However, Ms. Chasen’s testimony actually underscores the
materiality of Batzli’s admitted error. Because the divorce
court did not have jurisdiction over and could not award Ms.
Chasen’s 20% interest through a court order, the only way Mr.
Chasen could have received her 20% interest was through the
Agreement, which Batzli failed to properly draft.
Additionally, as support for the jury verdict, the majority
relies upon the fact that Mr. Chasen did not want to set aside
the Agreement. This fact, as well, is irrelevant as to whether
Batzli should have known if Mr. Chasen would have a claim for
damages. Mr. Chasen negotiated the Agreement to receive a
number of assets, including Ms. Chasen’s 20% interest in Chasen
Properties, LLC. The fact that Mr. Chasen wanted to keep what
he actually received in the otherwise favorable Agreement is
irrelevant in determining whether he was entitled to what he
thought he had also received -- Ms. Chasen’s 20% interest.
Therefore, Batzli should have known that his error would support
40
a claim for damages despite the fact that Mr. Chasen was,
overall, satisfied with the Property Settlement. See 17A Am.
Jur. 2d Contracts § 708 (“As a general rule, upon the breach of
a contract, the injured party may, by election, rescind and
recover the value of any performance, or stand by the contract
and recover damages for the breach.”); Richmond v. Hall, 466
S.E.2d 103, 107 (Va. 1996) (recognizing that rescission and a
suit for damages are alternate contractual remedies).
In sum, the evidence in this case clearly establishes that
Batzli should have known that he made an error that would
support a demand for damages and failed to report this error to
the insurance company. Pursuant to the plain language of the
liability policy, this claim was not covered and, therefore, the
insurance company did not have a duty to defend or indemnify
Batzli against Mr. Chasen’s malpractice claim. For this reason,
I would reverse the judgment of the district court and enter
judgment in favor of Minnesota Lawyers Mutual.
41