Beavor v. Tomsheck

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IN THE SUPREME COURT OF THE STATE OF NEVADA
CHRISTOPHER BEAVOR, AN No. 81964
INDIVIDUAL,
Appellant Ke
Appellant FILED
JOSHUA L. TOMSHECK, AN MOV 18 2972
INDIVIDUAL,
Respondent. cLERIZOF PUR AME COURT
OY hee DEPUTY CLERK
Appeal from a district court order granting summary judgment
in a legal malpractice action. Eighth Judicial District Court, Clark County;
James Crockett, Judge.
Affirmed in part, reversed in part, and remanded.
E. Brent Bryson, P.C., and E. Brent Bryson, Las Vegas; Cohen Johnson,
LLC, and H. Stan Johnson and Ryan D. Johnson, Las Vegas,
for Appellant.
Olson, Cannon, Gormley & Stoberski and Max E. Corrick, I, Las Vegas,
for Respondent.
BEFORE THE SUPREME COURT, HARDESTY, STIGLICH, and
HERNDON, Ju.
OPINION
By the Court, HARDESTY, J.:
In this appeal, we are asked to decide whether the proceeds
from a legal malpractice claim may be assigned to an adversary in the same
litigation that gave rise to the alleged legal malpractice. We have
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previously held that the assignment of a legal malpractice claim is
prohibited as a matter of public policy. See Tower Homes, LLC v. Heaton,
132 Nev. 628, 635, 377 P.3d 118, 122 (2016); Chaffee v. Smith, 98 Nev. 222,
223-24, 645 P.2d 966, 966 (1982). Allowing a client who is damaged by his
or her attorney to assign the malpractice claim to a third party threatens
the integrity of the highly personal and confidential attorney-client
relationship and creates an incentive for the client to file a malpractice
claim against the attorney and sell it to the highest bidder, even if the claim
lacks merit.
At issue in this case is the assignability of the proceeds from a
legal malpractice action, rather than the action itself. We limit our
consideration of this issue to the specific context presented in this case—-the
assignment of proceeds to an adverse party in the underlying litigation from
which the alleged malpractice arose. Because such an assignment would
allow parties to use legal malpractice claims as a bargaining chip in
settlement negotiations, as occurred here, we conclude that public policy
prohibits an assignment. of proceeds from a legal malpractice claim to an
adversary in the underlying litigation. For this reason, the district court
properly invalidated the assignment at issue. However, we also conclude
that an invalid assignment does not, by itself, preclude an injured client
from pursuing the legal malpractice claim where the assignment has been
set aside. Thus, we affirm in part and reverse in part the district court’s
order granting summary judgment, and we remand this matter for further
proceedings consistent with this opinion.
FACTS AND PROCEDURAL HISTORY
This dispute began when Yacov Hefetz loaned $2.2 million to
Toluca Lake Village, LLC, to fund the purchase of property. The loan was
secured by appellant Christopher Beavor’s personal residence in a guaranty
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agreement. Toluca Lake filed bankruptcy, and Beavor did not repay the
$2.2 million loan. Hefetz sued Beavor for breaching the guaranty
agreement. The jury returned a verdict in favor of Beavor.
After the verdict, Hefetz hired a new attorney, H. Stan Johnson,
and filed a motion for a new trial. Beavor also hired a new attorney,
respondent Joshua Tomsheck, who filed an opposition arguing only that
Hefetz’s motion for a new trial was untimely. The district court concluded
that the motion was timely and granted a new trial because Beavor did not
substantively oppose Hefetz’s arguments. Beavor did not timely appeal this
ruling. The lawsuit proceeded, and Tomsheck withdrew as Beavor’s
attorney. Later, Beavor sent a letter to Tomsheck informing him that he
might file a legal malpractice claim based on Tomsheck’s allegedly deficient
performance. Beavor hired another attorney and filed a motion to dismiss
Hefetz’s complaint, which the district court granted. We reversed for
reasons that do not affect the analysis in the instant appeal. See Hefetz v.
Beavor, 133 Nev. 323, 331, 397 P.3d 472, 478 (2017).
On remand, Hefetz and Beavor reached a settlement agreement
to dismiss the litigation. In addition to settlement payments in the amount
of $300,000, Beavor agreed to prosecute his legal malpractice claim against
Tomsheck and to “irrevocably assign[ |] any recovery or proceeds” from that
claim to Hefetz. To effectuate the assignment, Beavor agreed that he would
sign a conflict waiver to allow Johnson—Hefetz’s attorney—to represent
him regarding the legal malpractice claim. The parties agreed that Hefetz
would pay Johnson to prosecute Beavor’s claim. Beavor further agreed that
he would provide Johnson with all documents relating to Tomsheck’s
representation and do nothing intentional to impair the value of any
recovery. The agreement, however, provided that Beavor would retain the
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right to decide whether he would settle the litigation with Tomsheck. The
agreement also required Beavor to execute a confession of judgment in favor
of Hefetz in the amount of $2 million, which would be recorded should
Beavor breach his obligations under the settlement agreement.
Beavor complied with the settlement agreement by suing
Tomsheck for legal malpractice. 'Tomsheck moved for summary judgment
on the ground that Beavor impermissibly assigned his claim to Hefetz. In
opposition, Beavor argued that the assignment did not violate public policy
because he still retained control of the lawsuit and assigned only the
proceeds of the action to Hefetz. The district court concluded that the
assignment was invalid because Beavor transferred control of the litigation
to Hefetz and the assignment was to an adversary from the same litigation
in which the malpractice arose. The district court also concluded that the
assignment was framed as an assignment of proceeds to circumvent the
public policy that would otherwise bar such an assignment. Finally, the
district court concluded that Beavor could not reassert his claim against
Tomsheck because the assignment was irrevocable. Thus, the district court
granted summary judgment to Tomsheck. This appeal followed.
DISCUSSION
A summary judgment will be affirmed if this court’s de novo
review of the evidence—viewed in the light most favorable to the
nonmovant—shows “that no genuine issue as to any material fact [remains]
and that the moving party is entitled to a judgment as a matter of law.”
Wood v. Safeway, Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029 (2005)
(alteration in original) (internal quotation marks omitted).
Assigning the proceeds of a legal malpractice claim to an adversary from the
same litigation that gave rise to the malpractice claim violates public policy
Beavor argues that the district court erred in granting
summary judgment against him because our precedents allow parties to
assign the proceeds from legal malpractice claims if the damaged client
retains control of the litigation and was the party who pursued the
malpractice claim. He contends that he controlled the litigation and
previously pursued the claim, so the assignment of the proceeds was valid.
Tomsheck argues that legal malpractice claims and the proceeds from such
claims cannot be assigned to a former adversary from the same litigation
that gave rise to the alleged malpractice. Thus, Tomsheck asserts that the
district court properly invalidated the assignment.
Our precedents governing the assignment of legal malpractice
claims detail the policy concerns associated with such an assignment. In
Chaffee v. Smith, we held that “[als a matter of public policy, we cannot
permit enforcement of a legal malpractice action which has been transferred
by assignment... but which was never pursued by the original client.” 98
Nev. 222, 223-24, 645 P.2d 966, 966 (1982). We explained that “[t]he
decision as to whether to bring a malpractice action against an attorney is
one peculiarly vested in the client.” Id. at 224, 645 P.2d at 966. Later, in
Tower Homes, LLC v. Heaton, we held that an assignment of a legal
malpractice claim violates public policy because the assignor no longer
controls the claim. 132 Nev. 628, 635, 377 P.3d 118, 122 (2016). Relying on
the California Court of Appeal’s decision in Goodley v. Wank & Wank, Inc.,
we explained that allowing the assignee of a legal malpractice claim to
control the litigation against the assignor’s attorney “embarrassles] the
attorney-client relationship and imperills] the sanctity of the highly
confidential and fiduciary relationship existing between attorney and
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client.” Jd. at 635, 377 P.3d at 123 (quoting Goodley v. Wank & Wank, Inc.,
133 Cal. Rptr. 88, 87 (Ct. App. 1976)). The Goodley court reasoned that
allowing the assignment of a legal malpractice claim effectively “convert|s|
it to a commodity... {that is] transferred to economic bidders who have
never had a professional relationship with the attorney and to whom the
attorney has never owed a legal duty.” 133 Cal. Rptr. at 87. This would
allow legal malpractice claims to be exploited, presenting a plethora of
“probabilities that could only debase the legal profession.” Jd. It is our duty
to prevent a practice that could jeopardize or harm members of the legal
profession or the public. For that reason, our precedents bar the assignment
of a legal malpractice claim.
While this court has previously addressed assignments of legal
malpractice claims, we have not considered whether the proceeds of such
claims can be assigned. In other contexts, we have held that the assignment
of the proceeds of a personal-injury claim, rather than the claim itself, is
permissible because such an assignment permits the injured plaintiff to
retain control of the litigation without interference from the assignee. See
Achrem v. Expressway Plaza Ltd. P’ship, 112 Nev. 737, 741, 917 P.2d 447,
449 (1996); see also Reynolds v. Tufenkjian, 136 Nev. 145, 149, 461 P.3d 147,
151 (2020). Beavor invites us to allow a damaged client to assign the
proceeds from a legal malpractice claim if the client retains control of the
litigation. He asserts that, under this proposed rule, his assignment to
Hefetz was permissible.
To resolve this case, we need not accept Beavor’s invitation to
answer the broader question of whether assigning the proceeds of a legal
malpractice claim is prohibited in all instances, but instead confine our
decision to assignments to an adverse party in the underlying litigation. We
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hold, like the Supreme Court of Connecticut in Gurski v. Rosenblum &
Filan, LLC, “that neither a legal malpractice claim nor the proceeds from
such a claim can be assigned to an adversary in the same litigation that
gave rise to the alleged malpractice.” 885 A.2d 163, 167 (Conn. 2005). As
the Gurski court determined, the assignment of a legal malpractice claim—
or the proceeds of such a claim—to the adversary in the litigation that gave
rise to the malpractice “creates the opportunity and incentive for collusion
in stipulating to damages in exchange for an agreement not to execute on
the judgment in the underlying litigation.” Jd. at 174; see also, e.g., Skipper
v. ACE Prop. & Cas. Ins. Co., 775 $.E.2d 37, 38 (S.C. 2015) (“Were we to
permit such assignments, plaintiffs and defendants would be incentivized
to collude against the defendant’s attorney.”); Kenco Enters. Nw., LLC v.
Wiese, 291 P.3d 261, 263 (Wash. Ct. App. 2013) (noting that the mere
opportunity for collusion, regardless of whether collusion actually occurs,
“converts legal malpractice into a commodity”).
In addition to the potential of collusion, the assignability of a
malpractice claim to an adversary carries the risk that the malpractice
claim will be used to settle a client’s case. As the Indiana Supreme Court
warned in Picadilly, Inc. v. Ratkos, such assignments “would become an
important bargaining chip in the negotiation of settlements—particularly
for clients without a deep pocket.” 582 N.E.2d 338, 343 (Ind. 1991),
abrogated on other grounds by Liggett v. Young, 877 N.E.2d 178 (Ind. 2007).
If such assignments were permitted, adversaries could offer financially
strapped parties a favorable settlement in exchange for their legal
malpractice claims. /d. Not only could this undermine attorney-client
relationships and confidences, but it implicates the same policy concerns
discussed by the Goodley court—that a malpractice claim could be turned
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into a “commodity to be exploited,” which would encourage unjustified
lawsuits against attorneys, increase legal malpractice litigation, and
ultimately debase the legal profession. 133 Cal. Rptr. at 87.
The concerns discussed above apply with equal force when only
the proceeds of a legal malpractice claim are assigned to the adverse party
in the underlying litigation. Regardless of whether the client assigns the
malpractice claim itself or only the future proceeds from that claim to an
adversary, the result is the same—the adversary will have an interest in
any recovery from the legal malpractice claim. Thus, the same potential for
turning a legal malpractice claim into a commodity or bargaining chip exists
when only the proceeds of those claims are assigned, as this case illustrates.
Here, as part of the settlement agreement between Beavor and Hefetz,
Beavor had to prosecute his legal malpractice claim and transfer his
recovery from that claim to Hefetz. Though Beavor did not assign the
malpractice claim to Hefetz, he agreed to htigate his malpractice claim for
the benefit of Hefetz, effectively using the legal malpractice claim as a
bargaining chip. This is the exact danger Picadilly warned against.
Because public policy prohibits the assignment of proceeds from a legal
malpractice claim to the adversary in the underlying litigation, we conclude
that the district court correctly invalidated Beavor’s assignment to Hefetz.!
'We assume without deciding that the assignment is properly
characterized here as an assignment of proceeds rather than an assignment
of the legal malpractice claim. In light of our conclusion, we need not
determine whether Beavor retained control of the litigation such that he
assigned only the proceeds of the malpractice claim.
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Beavor retains the claim against Tomsheck even though the assignment of
proceeds is invalid
Relying on cases from other jurisdictions, Beavor argues that
even if the assignment of proceeds is invalid, he retains the right to assert
his legal malpractice claim on his own behalf against Tomsheck. Tomsheck
argues that we held in Tower Homes that a legal malpractice claim is
extinguished following an invalid assignment. We disagree with
Tomsheck’s reading of Tower Homes and join with other jurisdictions that
recognize that an injured client may pursue a legal malpractice claim
following an invalid assignment of the proceeds of that claim.
In Tower Homes, the bankruptcy court entered an order
authorizing the bankruptcy trustee to permit a group of creditors to pursue
Tower Homes’ malpractice claim against its former attorneys. 132 Nev. at
631-32, 377 P.3d at 120-21. The creditors controlled the litigation and
would receive all financial benefits from the claim. fd. While recognizing
that bankruptcy statutes permit bankruptcy creditors to bring debtor
malpractice claims on behalf of the bankruptcy estate under certain
conditions, this court determined that the creditors were not actually
bringing a claim on behalf of the estate and thus the bankruptcy court’s
order constituted an impermissible assignment of a legal malpractice claim
to them in violation of Chaffee, 98 Nev. at 223-24, 645 P.2d at 966. Tower
Homes, 132 Nev. at 633-34, 377 P.3d at 121-22. The creditors argued that
“the portion of the bankruptcy court order allowing [them] to retain any
recovery should be ignored and the proceeds should revert back to the
estate.” Jd. at 635 n.2, 377 P.3d at 123 n.2. However, we rejected that
argument because the creditors “cited no authority to support a remedy that
would result in rewriting the bankruptcy court’s order severing |their|
rights to the proceeds” from the invalid assignment. Thus, Tower Homes
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did not address whether the claim was extinguished, but only whether the
creditors could pursue it.
In distinguishing Tower Homes, Beavor directs our attention to
several persuasive authorities that lead to the relatively straightforward
conclusion that Beavor should be able to assert his claim for legal
malpractice notwithstanding the invalid assignment. See generally
Kommavongsa v. Haskell, 67 P.38d 1068, 1070-72, 1083 (Wash. 2003)
(allowing the injured client to pursue the legal malpractice claim following
the invalid assignment of that claim); see also Weston v. Dowty, 414 N.W.2d
165, 167 (Mich. Ct. App. 1987) (explaining that an invalid assignment does
not warrant dismissal of a legal malpractice claim); Tate v. Goins,
Underkofler, Crawford & Langdon, 24 8.W.3d 627, 634 (Tex. Ct. App. 2000)
(“[Tlhe plaintiffs right to bring his own cause of action for [legal]
malpractice is not vitiated by [an] invalid assignment.”). We therefore hold
that a legal malpractice claim is vested in the client, and an invalid
assignment, by itself, does not prevent an injured chent from pursuing a
legal malpractice claim where the assignment has been set aside. For that
reason, we reverse the district court’s grant of summary judgment on that
issue and remand for further proceedings consistent with this opinion.?
“Tomsheck also argues that the settlement agreement provided for an
irrevocable assignment of the legal malpractice claim, thus precluding
Beavor from pursuing the claim in his own name. Beavor maintains that
the settlement agreement contains a severance clause, so any invalid
portion of the claim still leaves the settlement agreement intact. We decline
to interpret the settlement agreement because Tomsheck is not a party to
it.
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CONCLUSION
We hold that neither a legal malpractice claim nor the proceeds
from such a claim can be assigned to an adversary from the same lhtigation
that gave rise to the alleged malpractice. Thus, we conclude that the district
court correctly invalidated Beavor’s assignment to Hefetz. However, we
further hold that a legal malpractice claim is vested in the injured client
and, generally, an invalid assignment of the claim or proceeds does not
warrant dismissal of the legal malpractice claim. Accordingly, we reverse
that portion of the district court’s order granting summary judgment, and
we remand this matter for further proceedings consistent with this opinion.
f Line, Jd.
Hardesty
We concur:
Aan Jo.
Stiglich
\A—
Herndon
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