Power Control Devices, Inc. v. Lerner

No. 117,705
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
POWER CONTROL DEVICES, INC., and PERSONAL BEST, INV.,
Appellants,
v.
MICHAEL "MICK" W. LERNER and LERNER LAW FIRM, P.A.,
Appellees.
SYLLABUS BY THE COURT
1.
To make a prima facie case for legal malpractice, the plaintiff must establish
(1) the duty of the attorney to exercise ordinary skill and knowledge, (2) a breach of that
duty, (3) a causal connection between the breach of duty and the resulting injury, and
(4) actual loss or damage.
2.
In a legal malpractice claim, a plaintiff must establish the validity of the
underlying claim by showing that it would have obtained a favorable judgment in the
underlying lawsuit had it not been for the attorney's error. This is commonly referred to
as proving the "case within a case."
3.
An attorney is an advocate for his or her client and is always trying to put the best
case forward. But in a legal malpractice claim, an attorney's opinion of the case, the
attorney's pleadings or filings in the case, or even the attorney's puffing about his or her
abilities to prevail, is not evidence of any of the claims made in the underlying lawsuit.
1
4.
In a legal malpractice action, to prove what is commonly referred to as a "case
within a case," the plaintiff must present the case as it would have been presented to a
judge or jury and the fact-finder must make a determination solely on the evidence
presented regarding that underlying case. This can be done by bifurcating the two parts of
the legal malpractice case. If not bifurcated, there must be a clean demarcation between
the two during the trial with, if a jury trial, appropriate jury instructions as to each.
5.
Nonexperts cannot give opinions or inferences during trial that are based on
scientific, technical, or other specialized knowledge. K.S.A. 2017 Supp. 60-456(a).
6.
Where the essential claim of an action against an attorney is a breach of a duty
imposed by law upon the relationship of attorney/client and not of the contract itself, the
action is in tort.
Appeal from Johnson District Court; DAVID W. HAUBER, judge. Opinion filed January 25, 2019.
Affirmed.
Patrick A. Hamilton, of Hamilton Law Firm LLC, of Lenexa, for appellants.
James C. Morrow, Marshall W. Woody, and Hillary Hyde, of Morrow Willnauer Church, LLC, of
Kansas City, Missouri, for appellees.
Before ARNOLD-BURGER, C.J., GREEN, J., and ROBERT J. FREDERICK, District Judge,
assigned.
ARNOLD-BURGER, J.: In order to prevail in a claim of legal malpractice, "a
plaintiff must establish the validity of the underlying claim by showing that it would have
2
resulted in a favorable judgment in the underlying lawsuit had it not been for the
attorney's error." Canaan v. Bartee, 276 Kan. 116, 120, 72 P.3d 911 (2003). This is
commonly referred to as proving the "case within a case." Here Power Control Devices
(PCD) hired Michael "Mick" W. Lerner to represent it in a federal court breach of
contract lawsuit against Orchid Technologies Engineering and Consulting (Orchid). The
federal district court overseeing the case dismissed it, holding that PCD failed to bring
the claim within the statute of limitations. PCD then sued Lerner for legal malpractice,
alleging that he was negligent by filing the suit after the statute of limitations had passed.
A jury agreed and awarded damages to PCD.
But following the verdict, the district court granted Lerner's motion for judgment
as a matter of law, overturning the jury verdict in favor of PCD, on the basis that PCD
failed to prove that it would have succeeded against Orchid at trial. In the alternative, the
district court judge conditionally granted Lerner a new trial based on a separate
instructional error—in case his judgment of no liability was overturned on appeal.
However, the judge did not err when he ruled in favor of Lerner. The case between PCD
and Orchid was highly technical, yet PCD failed to present any expert testimony to
establish that it would have been successful against Orchid if its lawsuit against Orchid
had been timely. Accordingly, we affirm the district court's decision granting judgment as
a matter of law to Lerner.
FACTUAL AND PROCEDURAL HISTORY
Lerner is an attorney licensed to practice law in Kansas. PCD hired Lerner to
represent it in a lawsuit against Orchid. Now, PCD is suing Lerner and The Lerner Law
Firm for malpractice. In order to understand the malpractice suit, we begin by examining
the underlying litigation.
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PCD's case against Orchid is examined.
PCD manufactures electronic devices. Its primary product is servo amplifiers,
which are used to drive motors in products such as radar systems, cameras, surveillance
systems, and weapons control systems.
In the early 2000s, PCD's Israeli representative informed PCD of an advanced
technology that presented a potential business opportunity worth millions of dollars to
PCD if PCD could design and sell it. The product was a brushless direct current motor
controller used in a missile navigation system. Another company, ELMO, was already
making the controller. ELMO supplied the controller to Rafael Aerospace, the largest
aerospace company in Israel. Rafael Aerospace provided the specifications of the
controller to PCD. It also provided the ELMO controller to PCD. PCD attempted to
create the controller on its own but was unsuccessful due to its lack of technical expertise.
As a result, PCD reached out to Orchid, an engineering firm, to see if Orchid could
design the controller.
Michael Allmayer, PCD's vice president of marketing, emailed Orchid's president
Paul Nickelsberg in January 2004 to begin discussing the project. Eventually, the parties
entered into a contract. The contract provided that Orchid would design and create a
prototype of a brushless DC motor controller (BLDC1). PCD did not provide the ELMO
controller to Orchid or even show it to Orchid as part of the negotiations with Orchid. It
did not want Orchid to reverse engineer the ELMO controller, it wanted one made from
scratch based solely from the ELMO specifications.
While the contract mentioned three different phases of project development, it
only contained the Phase 1 development plan. In Phase 1, Orchid was required to provide
four BLDC1 prototype circuit boards to PCD. The boards had to be "assembled,
debugged and delivered to [PCD]" pursuant to a schedule in the contract. There were
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numerous specifications in the contract. However, at the time the contract was written the
specifications were still being developed so the contract specifications were expressly
defined as merely "guidelines." The contract required PCD to "supply all prototype
testing." The contract did not specify how the prototypes should be tested. The contract
simply stated that Phase 1 would be completed when Orchid delivered the prototype
boards to PCD.
Over the course of the next few months, Orchid worked on designing and
programming the prototype. At the end of 2004, Orchid began sending prototypes to
PCD. PCD would test them and give feedback to Orchid about what needed to be
adjusted to comply with the specifications. Orchid ultimately sent four sets of prototypes.
Orchid sent its final prototypes to PCD on March 16, 2005. Orchid notified PCD
that the prototypes were within specification and that it was ready to move on to the next
phase of development. PCD tested the prototypes on April 4, 2005. PCD's tests showed
that the prototypes were not within the specifications. Allmayer emailed Nickelsberg that
day to inform Orchid of its test results.
"We took measurements on the BLDC output current, which I've attached. So far, we haven't
been able to verify the correct gain structure for the BLDC. At the 1 Volt command, the output
shows a gain of approximately 9. Have you been able to externally verify that the unit is
producing a current gain of 3 for every volt input command?
"I'm interested in hearing your ideas on this."
After discussing the discrepancies in testing results, it was discovered that Orchid had
been testing the total output current of the prototype current at the servo current node of
the BLDC1 prototype while PCD measured the phase current of the prototype at the
shunt current node. Orchid conducted more tests, including testing in the manner that it
discovered PCD had been using. On April 29, 2005, Nickelsberg emailed Allmayer a
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report—the BLDC1 Control Discussion and Review (Report). In the Report, Nickelsberg
again asserted that Orchid's BLDC1 was performing correctly when tested "using
industry-standard constant current monitoring techniques." The Report went on:
"The current measured at the BLDC SERVO CURRENT node and the current measured at the
SHUNT CURRENT nodes are not equivalent. The BLDC SERVO CURRENT node measures
the actual amplifier output current. The SHUNT CURRENT nodes measure both forward and
free-wheeling currents within the load. Once again, the measurements are not equivalent. The
freewheeling currents in the load, measured at the shunt point present a false indication of the
actual real current within the system."
Finally, the report stated that "very significant changes to the BLDC1 design will be
required" if PCD wished to use the alternate phase current testing method. Allmayer
explained that this Report was the first time he believed that Orchid would be unable to
fulfill the contract.
When Orchid told PCD that PCD was measuring the prototypes incorrectly, PCD
believed that Orchid was acting in good faith. PCD was relying on Orchid's expertise in
design. It continued to work with Orchid even after the Report to remedy the issues.
As evidence of their continued discussion and cooperative working arrangement,
PCD invited Nickelsberg to its plant to see, for the first time, a demonstration of the
ELMO controller prototype provided by Rafael Aerospace. Nickelsberg visited the plant
in August 2005. After witnessing the ELMO controller testing, according to Allmayer,
Nickelsberg said, "'Now I get it. I get what I missed. This is—this is a really special piece
of product.'" Nickelsberg continued by stating, "'Okay. I get it all now. Let me start
probing experimental units and see what I can do to get you one that works.'"
Moreover, at the August demonstration, Nickelsberg indicated that even though
the BLDC1 did not perform like the ELMO controller prototype, he believed the BLDC1
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had value and was marketable. PCD personnel asked Nickelsberg if he would help PCD
market the BLDC1 so PCD could make some money. Nickelsberg agreed and PCD
suggested that the money made could be reinvested into the costs of building a new one
from scratch. The parties agreed that would be a good idea. Orchid eventually sent PCD a
new development plan. The new development plan would start the project over anew and
would not use the technology that Orchid used in the original prototype designs—at
additional cost to PCD. The parties continued to try to devise a way for the BLDC1 to
work as hoped but they all finally determined it wasn't possible with the BLDC1 model.
Orchid did not follow through on its agreement to help PCD market the BLDC1.
Everything was placed on hold. But, about a year later, PCD noticed that a picture and
description of the BLDC1 was on the Orchid website—advertised as something Orchid
designed and could manufacture for a customer. PCD believed this to be in violation of
its confidentiality agreement with Orchid. PCD became concerned that Orchid was
stealing its design. After several years, PCD decided to look for an attorney to bring a
case against Orchid. On November 12, 2010, over five years after Orchid visited the PCD
facility and discovered the need for a new development plan, PCD contacted Lerner.
PCD and Lerner entered into a contract for Lerner to represent PCD. The contract was
never reduced to writing. However, Lerner agreed at his malpractice trial that he had an
obligation to PCD to file its lawsuit before the statute of limitations expired.
Lerner knew at the time he was hired that the statute of limitations would be a
pressing issue in the case. Kansas' five-year statute of limitations for breach of contract
claims had already expired. But, Orchid is a Massachusetts corporation and
Massachusetts has a six-year statute of limitations.
Lerner believed that the statute of limitations would run on PCD's claims against
Orchid on April 29, 2011—six years after the date Orchid sent the Report to PCD. He
filed suit in the United States District Court for the District of Massachusetts on April 25,
7
2011. PCD contended that the contract required its method of testing. Orchid took the
position that the prototypes worked and that it fulfilled its obligation under the contract
when it delivered the prototypes. Orchid argued that once PCD accepted delivery of the
prototypes, it then asked Orchid for something different.
The parties attempted mediation in May 2012, but it was not successful. The
parties then began discovery. The case proceeded to a pretrial conference in March 2013,
with the trial scheduled to occur the following month. At the pretrial conference, Orchid
announced its intention to file for summary judgment based on the statute of limitations
issue. The court postponed the trial and allowed the parties to file motions regarding
summary judgment.
Orchid argued that PCD admitted in the joint pretrial memorandum that the
alleged breach occurred on March 16, 2005. Orchid cited statements by PCD that it
received Orchid's final design on March 16, 2005, and that it was aware that the design
did not meet its specifications shortly thereafter. Orchid cited the parties' contract, which
stated that the contract was finished with the delivery of the final prototypes. Orchid also
argued that PCD made its final payment under the contract on April 4, 2005, which was
outside of the statute of limitations period.
The federal district court granted Orchid's motion for summary judgment. It held
that PCD discovered the breach of contract on April 4, 2005, when it tested the
prototypes and found that they did not meet the contractual specifications. The court
disregarded the Report because the parties' contract did not state that contract completion
was contingent upon the receipt of such a report. Rather, the Report "simply confirmed
what Power Control already suspected, i.e., that the prototypes did not meet plaintiff's
standards." The court further stated that "[g]iven that the plaintiff only needed notice of
its potential cause of action and not confirmation of breach from the defendant, it
certainly had such notice prior to receiving the April 29th report."
8
PCD appealed to the First Circuit Court of Appeals. However, it decided not to
pursue the appeal because the cost of appeal would exceed the damages it sought from
Orchid. PCD and Orchid settled the case. The settlement included assurances regarding
the protection of PCD's design and source code.
The current malpractice case is examined.
PCD filed suit against Lerner and The Lerner Law Firm in September 2015. The
petition stated five causes of action: legal malpractice, breach of contract, breach of
fiduciary duty, fraud, and negligent misrepresentation. The district court scheduled the
case for a jury trial. The case proceeded to jury trial on the legal malpractice claim.
After evidence was presented, Lerner filed a motion for judgment as a matter of
law. Lerner noted that PCD was not planning to present any expert testimony at trial.
Without expert testimony, Lerner argued, PCD would be unable to prove that Orchid
breached the contract in the underlying case. The district court took the motion under
advisement and allowed the case to proceed to the jury.
Throughout the trial, there was a lot of conflicting testimony concerning whether
Lerner was negligent in not filing the case before April 4, 2005, and whether the federal
judge was correct in dismissing the case on that basis. Suffice it to say that reasonable
minds could differ as to when the statute of limitations began to run in the underlying
case. But following trial, the jury found that Lerner was negligent in providing legal
services to PCD, and Lerner does not challenge that factual finding in this appeal.
The jury further found that Orchid breached its contract with PCD, and that PCD's
lawsuit against Orchid would have been successful but for Lerner's negligence. It
awarded PCD $279,067.35. The jury found that the value of the underlying breach of
9
contract claim against Orchid was $58,977.50. The rest of the damages award was costs
and expenses PCD incurred in bringing the underlying case against Orchid.
Lerner filed a renewed motion for judgment as a matter of law after the trial. The
district court granted Lerner's motion and set aside the jury verdict. The court held that
PCD failed to demonstrate that Orchid breached the underlying contract. The court stated
that PCD failed to provide evidence regarding a contractual requirement for testing
protocols. The court noted that PCD did not present expert testimony to prove its claim
that Orchid breached the contract. The court rejected PCD's argument that Lerner's own
testimony through the pleadings he filed and the discussions he had with PCD executives
and lawyers could be used to prove that Orchid breached the contract.
In addition to granting Lerner's motion for judgment as a matter of law, the district
court conditionally granted him a new trial based on invalid jury instructions. The court
held that the jury instructions were insufficient insofar as they failed to instruct the jury
on the proof necessary to establish the breach of contract claim between Orchid and PCD.
The court also noted that a majority of the damages award, $220,089.85, was the amount
that PCD spent on attorney fees and expenses in the underlying case against Orchid. The
court held that attorney fees from an underlying case in a malpractice action are not
recoverable. The court's reasoning was that such a recovery would amount to a double
recovery for the plaintiff—the value of the underlying breach of contract claim plus the
underlying attorney fees. Although, the court noted, the plaintiff would be entitled to
recover attorney fees incurred in prosecuting the legal malpractice claim. Therefore, the
court set aside that portion of the verdict. The court added that, should a new trial occur,
any damages awarded at the new trial could not include the attorney fees and expenses
incurred in the underlying case.
PCD appealed.
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ANALYSIS
The district court did not err by granting Lerner's motion for judgement as a matter of
law.
PCD's first argument on appeal is that the district court erred in granting Lerner's
motion for judgment as a matter of law. The district court's primary basis for granting
Lerner's motion was that PCD failed to prove that it would have prevailed against Orchid
in the underlying case. Lerner asserts that this was the correct conclusion, and that PCD
did not provide any evidence at trial that it would have prevailed against Orchid. Lerner
argues that PCD failed on this point because it did not identify a material term in the
contract that Orchid breached, and it did not have an expert witness who could testify as
to how Orchid's prototypes failed to satisfy the contract. On the other hand, PCD argues
that the district court did not consider all the evidence, and that it improperly weighed
evidence in granting the motion. Specifically, PCD argues that Lerner's testimony
provided "substantive evidence upon which the jury could determine if Orchid breached
the Contract." PCD also cites Nickelsberg's statements as an "admission to PCD's
principals that the prototypes did not meet the contractual specifications."
In reviewing the district court's decision, we apply the same standard as did the
district court and review the motion de novo.
"A district court must deny a 60-260(a) motion if evidence exists upon which a jury could
properly find a verdict for the nonmoving party. In evaluating the motion, a district court
must resolve all facts and inferences reasonably to be drawn from the evidence in favor
of the party against whom the ruling is sought. Where reasonable minds could reach
different conclusions based on the evidence, the motion must be denied." Russell v. May,
306 Kan. 1058, Syl. ¶ 2, 400 P.3d 647 (2017).
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To make a prima facie case for legal malpractice, PCD had to show: "'(1) the duty
of the attorney to exercise ordinary skill and knowledge, (2) a breach of that duty, (3) a
causal connection between the breach of duty and the resulting injury, and (4) actual loss
or damage.'" Canaan, 276 Kan. at 120. Additionally, "a plaintiff must establish the
validity of the underlying claim by showing that it would have resulted in a favorable
judgment in the underlying lawsuit had it not been for the attorney's error." 276 Kan. at
120. The only element of legal malpractice at issue in this appeal is whether PCD would
have prevailed against Orchid in the underlying claim.
The parties' primary dispute was whether the prototypes met the contractual
specifications. Orchid tested the prototypes and believed that they met the specifications.
PCD tested the prototypes and believed that they did not meet the specifications. In the
underlying litigation, each side had experts prepared to testify. Orchid hired David Saar
and PCD hired Michael Sidman. Saar testified in a deposition that Orchid tested the total
output current of the prototype. This is different than measuring phase current. PCD
believed that this testimony was key to its case because it asserted that the specifications
in the contract related to phase current. PCD also planned to call Sidman in the
underlying case. Sidman would testify that PCD used the proper testing method. Sidman
personally tested the prototypes at PCD's plant.
The contract between Orchid and PCD did not specify how the prototypes were to
be tested. Determining which party was correct, and thus who should have prevailed in
the underlying litigation, required PCD to provide evidence that it was testing the
prototypes correctly and in accordance with any industry standards that existed.
However, its expert Sidman did not testify in the malpractice case. Furthermore, the
district court judge held that Sidman's opinions were not allowed into evidence other than
through his direct testimony because they were hearsay. PCD was attempting to prove its
case through Lerner's hiring of Sidman as an expert in the case and Lerner's trust in
Sidman's opinions, without actually calling Sidman to the stand to testify. PCD also
12
failed to provide any evidence that its use of the phase current testing it conducted was
performed correctly or even required by the contract.
We pause to note PCD's trial strategy throughout the case was to prove its
underlying case against Orchid through Lerner. Because Lerner, as PCD's counsel,
argued strenuously in pleadings and in meetings with Allmayer and others that he could
prove Orchid violated the terms of the contract, then all of Lerner's pleadings and
statements were evidence that Orchid breached the contract. This is a dangerous path and
one that the district judge repeatedly and properly criticized. An attorney is an advocate
for his or her client and is always trying to put the best case forward. But in a legal
malpractice action, an attorney's opinion of the case, the attorney's pleadings or filings in
the case, or even the attorney's puffing about his or her abilities to prevail, is not evidence
of any of the claims made in the underlying lawsuit. As Judge Hauber so aptly put in his
ruling granting judgment for Lerner as a matter of law:
"During oral argument, when asked to identify the witnesses or evidence that
indicated PCD had shown a breach of contract, plaintiffs' counsel asserted that they had
proved their case through Mr. Lerner's testimony, which he characterized as 'admissions.'
The Court rejects this proposition. Lawyers must zealously represent their clients in all
cases, but, as the standard instruction indicates, statements of counsel are not evidence.
[PIK Civ. 4th 102.04.] Their statements may be useful to guide a jury on the issues, but
their written submissions, arguments and briefs are not evidence, only advocacy. None
are admissible evidence in the underlying case."
See Heinze v. Bauer, 145 Idaho 232, 238, 178 P.3d 597 (2008) ("statements made on
behalf of a client in the course of representation are not personal admissions that may be
used against the attorney in subsequent litigation"); Barcola v. Hourigan, Kluger &
Quinn P.C., 82 Pa. D. & C.4th 394, 411 (2006) ("If statements and arguments made by
counsel in furtherance of a client's claim were routinely deemed to constitute binding
admissions against a lawyer in a subsequent legal malpractice action, it could
13
conceivably have a chilling impact upon the vigor and resulting effectiveness of counsel's
advocacy.").
The only other evidence that PCD contends supports the jury verdict regarding
breach of the PCD-Orchid contract is the Report itself, indicating that the two entities are
using different testing methods and the statement made by Nickelsberg several months
after the alleged breach, as relayed by Allmayer, "'Now I get it. I get what I missed. This
is—this is a really special piece of product. . . . Okay. I get it all now. Let me start
probing experimental units and see what I can do to get you one that works.'" But again,
as Judge Hauber points out in his order:
"No explanation was provided as to what 'he got' or what he 'missed' or even
whether it related to any contractual requirement or testing protocol. Mr. [Allmayer]
could not provide foundation for an admission without describing, competently, and with
foundation, what aspect of the device's performance somehow related to the ELMO or
why it mattered. Following that trip, Mr. [Allmayer] testified that Mr. Nickelsberg sent a
new proposal to create a BLDC2. The testimony read to the jury from his deposition
established that he was an engineer. He testified that design is a 'process' and a prototype
is a step along that process.
"When handed the [Report], Mr. Nickelsberg testified that he was involved in the
testing and 'may have done them.' He was shown the graph of results of measurements of
current from the prototype. He recounted his trip to PCD. When asked about the readings
from the device, he said PCD 'indicated that there were readings that it seemed like they
didn't understand or that weren't in accord with what they expected.' The testimony does
not pinpoint any specific aspect of the 'readings.' He was asked about 'revisiting' the
development plan after the August trip and he said he did not recall entirely why they
were doing so other than the parties were 'trying to look for ways all through these few
months to make something [for] PCD that was affordable and feasible.' When challenged
as to whether Orchid was 'trying to meet the written specifications of the [original]
development plan,' he responded: 'We had already met the written specifications of the
development plan.' He then agreed that they were trying to do something 'beyond meeting
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those written specifications' with the new development plan. Finally, when Mr. Lerner
kept challenging him about when Orchid was trying to meet the original specifications
after [proposing] a revised development plan, he reiterated that they had met them and
that PCD apparently 'wanted something different' to meet the same specifications.
"The foregoing fails to demonstrate a breach of contract in a case that required
expert testimony to establish what was made, tested and how it mattered under the
contract specifications. A party cannot unilaterally impose a requirement for testing in a
certain manner [without] conveying the same by contract. There is no evidence of any
contract provision, specifications or otherwise that was breached. Certainly, there is no
evidence of damages as it relates to what was received versus what was expended.
"Plaintiffs never sought this Court's interpretation of any of the terms of the
contract which can be interpreted as a matter of law. Osterhaus v. Toth, 291 Kan. 759,
768, 249 P.3d 888 (2011). Even the Pretrial Order fails to specify what aspect of the
contract was breached. If the Court cannot interpret the contract to determine what
precise issues should be submitted to the jury, then submitting any associated breach of
contract claim would invite speculation."
To prove what is commonly referred to as "a case within a case," the plaintiff must
present the case as it would have been presented separately to a judge or jury and the
fact-finder must make a determination solely on the evidence presented regarding that
underlying case. This can be done by bifurcating the two parts of the legal malpractice
case. If not, there must be a clean demarcation between the two during the trial. In this
case, the two issues were hopelessly combined and confused with little guidance to the
jury regarding how to sort it out.
In sum, PCD did not present expert testimony in its malpractice case against
Lerner. Under Kansas' rules of evidence, nonexperts cannot give opinions or inferences
that are "based on scientific, technical or other specialized knowledge." K.S.A. 2017
Supp. 60-456(a). The engineering concepts in this case certainly qualify as scientific,
technical, or other specialized knowledge. Thus, to prove the "case within a case," PCD
15
needed to have an expert testify that Orchid failed to meet the contract specifications. See
City of Arkansas City v. Bruton, 284 Kan. 815, 842-43, 166 P.3d 992 (2007)
("Interpretation of the engineering plans and specifications is not something that is within
the common knowledge of the public; it is a matter that requires the technical explanation
of an expert in the field."). The district court correctly found that expert testimony was
necessary to prove the underlying case, and because it was not provided, we affirm the
district court's entry of judgment for Lerner as a matter of law.
The district court did not err by refusing to instruct the jury on PCD's breach of contract
claim against Lerner.
PCD also contends on appeal that the district court erred in not allowing its
separate breach of contract claim to go forward. During the jury instructions conference,
PCD asked the court to instruct the jury on its breach of contract claim. PCD cited
Lerner's testimony, in which he testified that he had a contractual duty to file the case
against Orchid within the statute of limitations, as a basis for the instruction. PCD argued
that it should be able to recover the fees and expenses paid to Lerner under the contract.
In other words, Lerner contracted to timely file a case, he breached the contract;
therefore, PCD is entitled to a return of its attorney fees, unrelated to whether it would
have prevailed in the underlying case. Accordingly, PCD argued that it would not have to
prove that the underlying litigation with Orchid would have been successful to prevail on
its breach of contract claim against Lerner. The district court held that the breach of
contract theory was the same as the malpractice claim—failure to timely file the lawsuit
against Orchid. The district court refused to instruct the jury on PCD's separate breach of
contract claim, holding that PCD's claims against Lerner sounded in tort. PCD appealed
the district court's ruling and makes the same arguments here as it did to the district court.
The standard of review for jury instruction issues has several parts. First, this court
exercises unlimited review to determine whether the issue was preserved for appeal.
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Second, the court employs unlimited review of the record to determine if the requested
instruction was legally and factually appropriate. Third, if the district court erred, this
court must determine whether the error was harmless. State v. McLinn, 307 Kan. 307,
317, 409 P.3d 1 (2018). The "first and third step are interrelated in that whether a party
has preserved a jury instruction issue will affect our reversibility inquiry at the third
step." State v. Bolze-Sann, 302 Kan. 198, 209, 352 P.3d 511 (2015). If a party preserves
the issue, as PCD did here, then the district court's error is reversible if this court
determines there is a reasonable probability that the error affected the outcome of the trial
in light of the entire record. State v. Louis, 305 Kan. 453, 457-58, 384 P.3d 1 (2016).
Having determined that PCD preserved this issue for appeal, the next step is
determining whether a breach of contract instruction was legally and factually
appropriate. The issue presents a question of law, and this court's review is unlimited.
Hunt v. KMG Main Hurdman, 17 Kan. App. 2d 418, 419, 839 P.2d 45 (1992). There are a
number of Kansas cases which discuss the issue. The Kansas Supreme Court has
explained:
"Legal and medical malpractice generally constitute both a tort and a breach of
contract. An action for liability of an attorney on the grounds of negligence for failure to
discharge his professional duty to a client rests on the employment contract and therefore
is contractual in nature. Where the act complained of is a breach of specific terms of the
contract without any reference to the legal duties imposed by law upon the relationship
created thereby, the action is contractual. Where the essential claim of the action is a
breach of a duty imposed by law upon the relationship of attorney/client and not of the
contract itself, the action is in tort." Pancake House, Inc. v. Redmond, 239 Kan. 83, 85-
86, 716 P.2d 575 (1986).
The Kansas Supreme Court examined this distinction in Malone v. University of
Kansas Medical Center, 220 Kan. 371, 552 P.2d 885 (1976). There, Rose Malone went to
the University of Kansas Medical Center (KUMC) for treatment. After being examined, a
17
physician gave her a prescription for an alleged infection and told her to return home. The
next day, Malone became ill and suffered immense pain. An ambulance took her back to
KUMC. Her uterus had ruptured and it caused a fetus she was carrying to die. Without
her consent, doctors performed a total abdominal hysterectomy. Malone sued KUMC for
breach of contract. One count of her petition alleged that when she first went to KUMC
for treatment the parties entered into an express contract under which KUMC "agreed to
provide 'complete, competent, and necessary medical treatment' for her." 220 Kan. at
372. Another count of her petition alleged that when she returned to the hospital the
following day the parties entered into an express contract under which KUMC "agreed to
provide 'only necessary, competent and authorized medical treatment' for [her]." 220
Kan. at 372. The district court dismissed Malone's petition, holding that her action was
one in tort and not in contract. Malone appealed.
The Kansas Supreme Court explained the distinction between contract and tort
actions, stating: "A breach of contract may be said to be a material failure of
performance of a duty arising under or imposed by agreement. A tort, on the other hand,
is a violation of a duty imposed by law, a wrong independent of contract." 220 Kan. at
374. The court identified the primary issue as "whether the actions or omissions
complained of constitute a violation of duties imposed by law, or of duties arising by
virtue of the alleged express agreement between the parties." 220 Kan. at 374. The court
noted that physicians could "enter into express contracts by which they bind themselves
to warrant the success of treatment, or to otherwise obligate themselves above and
beyond their ordinary duties." 220 Kan. at 374. Those contracts, the court noted, "may
form the basis for breach of contract actions." 220 Kan. at 374. However, that was not the
case with Malone's allegations. Malone's allegations were that KUMC failed to exercise
the "reasonable care, skill, and diligence which the law requires of hospitals and
physicians—regardless of any express contract therefor between the parties." 220 Kan. at
376. The court concluded that Malone's action clearly sounded in tort, and thus KUMC
was immune from liability. 220 Kan. at 376; see also KPERS v. Reimer & Koger Assocs.,
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Inc., 262 Kan. 110, 114-15, 936 P.2d 714 (1997) (holding that a breach of contract claim
against a law firm was properly characterized as a tort action because it alleged that the
firm failed to properly advise the plaintiff).
Malone can be contrasted with Juhnke v. Hess, 211 Kan. 438, 506 P.2d 1142(1973). In that case Carl Juhnke sued attorney Herbert Hess for failure to timely file an
appeal on Juhnke's behalf. Juhnke owned land which the City of Hutchinson condemned.
A court-appointed appraiser awarded Juhnke $1,250. Juhnke hired Hess to file an appeal
of the appraiser's award. But, Hess failed to file a timely appeal. Juhnke alleged that, had
his appeal been timely filed, he would have received an award exceeding $50,000. Hess
filed a motion to dismiss arguing that Juhnke's action sounded in tort, and that the two-
year statute of limitations for tort actions had run. The district court agreed and granted
Hess' motion to dismiss. Juhnke appealed, arguing that his claim was based on breach of
contract and that the three-year statute of limitations for such causes of actions had not
yet run. The Kansas Supreme Court agreed with Juhnke. It held that Hess' agreement to
timely file the appeal, and Juhnke's agreement to pay him, was the consideration for the
lawsuit. 221 Kan. at 441. The "real basis of [Juhnke's] claim for relief [was] financial loss
resulting from failure to discharge a contractual obligation (proof of which contract,
breach and loss is another matter)." 221 Kan. at 441. The court reversed and remanded
the case. 221 Kan. at 442.
Before analyzing the issue, it is worth noting that PCD did not present evidence of
an express contractual promise by Lerner to file the case within the statute of limitations.
The only evidence PCD presented was the following question and answer:
"Q: All right. And you had a legal and contractual obligation to Power Control Devices
under the contract to file its lawsuit in a timely fashion, meaning before the statute of
limitations expired.
"A: I've said so and I'll say it again, yes, absolutely."
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As the Kansas Supreme Court has explained, an attorney's obligation to perform a legal
duty is contractual in nature because the duty exists by virtue of the employment contract.
Pancake House, 239 Kan. at 85-86. In that sense, Lerner had a contractual obligation to
timely file PCD's lawsuit. But PCD did not provide evidence, as in Juhnke, that Lerner's
promise to file suit was an express promise and part of the bargained-for consideration
that formed the basis of PCD's contract with him.
This case is more akin to Malone than Juhnke. Lerner's duty to determine when
the statute of limitations ran and timely file suit required him to exercise skill and
judgment. PCD is alleging that Lerner failed to exercise the "degree of learning, skill, and
care that a reasonably competent lawyer would use in similar circumstances." Canaan,
276 Kan. at 129. This is not a case where Lerner promised something above and beyond
his ordinary duty. Such a promise may have formed the basis for a breach of contract
action. See Malone, 220 Kan. at 374. PCD's claim in this case is that Lerner breached a
duty imposed by law—the claim cannot be made "without any reference to the legal
duties imposed by law upon the relationship created" by the employment contract
between PCD and Lerner. Pancake House, 239 Kan. at 86. Therefore, the district court
did not err in failing to give a breach of contract instruction.
But even if the district court erred, the error was harmless. An error is harmless if
this court determines that there is a reasonable probability that the error did not affect the
outcome of the trial in light of the entire record. Louis, 305 Kan. at 457-58. The reason
why any instruction error here would be harmless is because PCD failed to prove that the
alleged breach of contract resulted in damages.
In order to prevail on a breach of contract claim, a plaintiff must prove:
"(1) the existence of a contract between the parties; (2) sufficient consideration to support
the contract; (3) the plaintiff's performance or willingness to perform in compliance with
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the contract; (4) the defendant's breach of the contract; and (5) damages to the plaintiff
caused by the breach." Stechschulte v. Jennings, 297 Kan. 2, 23, 298 P.3d 1083 (2013).
PCD argues that it is entitled to be reimbursed for the attorney fees it paid to
Lerner, as well as the costs and expenses it incurred in bringing the suit. It asserts that it
is not required to prove that it would have succeeded in the underlying litigation against
Orchid in order to recover these damages. However, PCD does not provide support for its
position. PCD does note that there are no cases which require plaintiffs in breach of
contract cases against lawyers to prove that they would have prevailed in the underlying
litigation. While this appears to be true, it is likely because such claims are properly
characterized as tort claims (which do require such proof) and not as breach of contract
claims.
"Generally speaking, when awarding contract damages, the goal is to put the
nonbreaching party in the position he or she would have been in had the breach never
occurred." Peterson v. Ferrell, 302 Kan. 99, 106, 349 P.3d 1269 (2015). Here, if the
alleged breach had never occurred PCD still would have paid Lerner the attorney fees
that PCD now requests as damages. Allowing PCD to seek those attorney fees would not
put it in the same position it would have held had the suit against Orchid been timely
filed. If the alleged breach had not occurred, PCD would have been able to proceed to
trial against Orchid. PCD may have prevailed at trial. If that were the case, then the
damages for Lerner's alleged breach of contract would have been the value of any
judgment PCD would have obtained against Orchid. However, as discussed above PCD
failed to prove that it would have prevailed in the underlying litigation. This means that
any failure of the district court to instruct the jury on PCD's breach of contract claim was
harmless error.
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Based on our holding affirming the granting of judgment as a matter of law to
Lerner, we need not address the district court's alternative findings related to a possible
retrial.
Affirmed.
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