John Kohl & Co. v. Dearborn & Ewing

JOHN KOHL & COMPANY, P.C., )
JOHN B. KOHL, III, and HELEN H. KOHL, )
Individually, and JOHN B. KOHL, III, )
TRUSTEE, as Trustee of the John Kohl & )
Company, P.C. Profit Sharing Plan, )
)
Plaintiffs/Appellants, ) Appeal No.
) 01-A-01-9609-CV-00421
v. )
) Davidson Circuit
DEARBORN & EWING, a Tennessee ) No. 90C-1962
General Partnership, and )
DAN E. HUFFSTUTTER, )
Defendants/Appellees.
)
) FILED
April 23, 1997
COURT OF APPEALS OF TENNESSEE
Cecil W. Crowson
MIDDLE SECTION AT NASHVILLE Appellate Court Clerk
APPEAL FROM THE CIRCUIT COURT FOR DAVIDSON COUNTY
AT NASHVILLE, TENNESSEE
THE HONORABLE THOMAS W. BROTHERS, JUDGE
STEVEN C. DOUSE
King & Ballow
1200 Noel Place
200 Fourth Avenue, North
Nashville, Tennessee 37219
ATTORNEY FOR PLAINTIFFS/APPELLANTS
JOHN BRANHAM
KATHRYN BARNETT
Branham & Day
150 Fourth Avenue North
Suite 1910
Nashville, Tennessee 37219
ATTORNEYS FOR DEFENDANTS/APPELLEES
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED
SAMUEL L. LEWIS, JUDGE
OPINION
This is an appeal by plaintiffs/appellants, John and Helen Kohl, from a
decision of the Davidson County Circuit Court. The trial court awarded Plaintiffs a
total of $33,091.05 for the legal malpractice of defendants/appellees, Dearborn &
Ewing and Dan E. Huffstutter, and held the remainder of Plaintiffs' claims were
barred by the statute of limitations. The facts out of which this matter arose are as
follows.
Plaintiffs own a land surveying business. They retained Defendants in 1983
to incorporate the business and to handle other corporate matters. From 1983 to
1988, Huffstutter advised Plaintiffs on many issues. He aided them in the
development of a profit sharing plan (“the Plan”) and administered the Plan until
1988. He also advised Plaintiffs in 1986 on how to finance the purchase of a building
for their business. Pursuant to this advice, Plaintiffs obtained a loan from Commerce
Union Bank. The Small Business Administration covered a portion of the loan.
Huffstutter advised Plaintiffs the Plan should purchase all or a portion of the loan.
He explained to Plaintiffs they needed to transfer funds from their IRA accounts into
the Plan in order to do this, but stated the IRA withdrawals would not be taxed.
In September 1988, Plaintiffs received a letter from the IRS informing them
of the following:
In our review of your tax return for 1986, it appears that the
income deductions, and credits you reported do not agree with the
amounts reported to us on information returns filed by the payers.
(see attached page(s)).
Please explain in a signed statement where the amounts are
reported on your tax return. If the income was not reported or if
the deductions or credits were overstated, please explain why.
Plaintiffs responded to the letter through their accountant, David Hinton. In October
1988, Robert E. Kolarich, Plaintiffs' attorney, wrote Dearborn & Ewing the following
letter:
In our last discussion of John Kohl's account with your firm, it
was agreed that you would handle the application for an extension
of his tax return, after which the file would be removed. Mr.
Kohl intends to hire a new firm to handle his tax work, however,
I understand that a new question has arisen with regard to his
pension and profit sharing plans. Evidently, Mr. Huffstetter [sic]
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had advised that the funds held in an IRA account could be
transferred to the pension and profit sharing account and the IRS
is reviewing the transaction. Please advise as to when this issue
may be resolved so that the files may be transferred.
John Kohl next received a letter in August 1989 from Dearborn & Ewing. The letter
stated, in part, as follows: “However, because the Sales Agreement also looked to the
status of Plan participants (as beneficial owners of the Plan), officers and
shareholders of the Borrower who are also Plan participants may cause the Plan's
purchase of the SBA Loan to be questioned.”
Plaintiffs filed a complaint against Huffstutter and Dearborn & Ewing on
1 May 1990. The complaint alleged the following acts constituted legal malpractice:
1) advising Plaintiffs the Plan should acquire all or a portion of the $250,000.00 loan;
2) advising Plaintiffs they should transfer funds from their IRA accounts into the Plan
and the withdrawals would not be taxed; and 3) advising Plaintiffs to make a
$2,000.00 voluntary deductible contribution to the Plan in 1986. Defendants
answered the allegations and claimed Plaintiffs had failed to mitigate their damages
and the statute of limitations barred their claims. Plaintiffs moved to amend their
complaint by adding a count regarding the negligent drafting and administration of
the Plan. The court granted the motion.
Defendants filed a motion for partial summary judgment as to Plaintiffs'
claims to attorney's fees incurred in pursuit of the litigation on 22 January 1996.
Defendants argued there was no statutory, legal, or contractual basis for the recovery
of the fees. The court granted the motion, but noted that it made no determination as
to the remainder of Plaintiffs' claims “including attorney's fees allegedly expended
for corrective action resulting from defendants' negligence.”
Trial was held from 29 April to 2 May 1996. Plaintiffs submitted a
supplement to their expert witness statement on 26 April 1996. The supplement
reflected an upward change in the amount of damages for the lost value of the funds
transferred from the IRA accounts. During the trial, Plaintiffs moved the court to
amend their complaint to claim special damages for the fees paid to Dearborn &
Ewing for the negligent work. The court denied the motion. The trial court also ruled
that it would only consider the expert testimony consistent with the original expert
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witness statements and depositions. As a result, the trial court completely disregarded
the supplemental expert witness statements of Samuel Butts, Plaintiffs' expert.
Finally, the trial court ruled the testimony of Larry Crabtree, the attorney who
performed or supervised the corrective work, was not admissible under Disciplinary
Rule 5-101(B)(3).
The trial court entered its final order on 22 May 1996. The order
incorporated the trial court's findings of fact and conclusions of law made at the close
of the parties' cases. As to the statute of limitations defense, the trial court reasoned
as follows:
In this case, Mr. Kolarich wrote a letter on October 24,
1988 that clearly points out there is some problem associated with
the rollover of IRA funds into the pension plan, it had been
noticed, they were aware of it, and it was so severe in his mind
and Kohl's mind that they were going to change law firms and
have someone else do their tax work. They had turned this over
to their CPA. They were taking actions. They knew that they had
received some injury as a result of potentially erroneous advice
they had received from Mr. Huffstutter and the Dearborn &
Ewing law firm.
And the Court finds that as of October 24, 1988, the
Kohls should have known, if they were not aware, they should
have known, as a reasonable person, that they had suffered a
legally cognizable injury from the misconduct of Mr. Huffstutter.
And therefore, any action against him should have been filed in
relationship to that rollover within one year. An interesting
question is whether -- and therefore, the claims based upon the
rollovers are barred.
A question that's tied in with that is whether or not that
bars any recovery. Does that put them on notice as to the entire
plan? And I find that it does not, This letter is very specific. It
points out that there are problems with the changing of monies
from an IRA plan into a pension plan, profit sharing plan only.
It doesn't address the SBA loan or any other aspect of the plan,
simply that specific item. And I think that it is clearly distinct
enough that it does not bar their filing suit until they became
aware of this, under Mr. Kohl's testimony, sometime shortly
before he first went to King & Ballow in September of 1989, and
this action was filed timely -- in a timely manner for the other
claims.
The court held Defendants liable to Plaintiffs in the amount of $28,591.05 for
advising Plaintiffs the Plan could purchase a portion of the loan and in the amount of
$4,500.00 for negligently drafting and administering the Plan. The trial court also
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ruled that it would have awarded $30,000.00 to Plaintiffs for the lost earning power
of the money withdrawn from the IRA accounts and $19,000.00 in attorney's fees had
the statute of limitations not barred the claims relating to the IRA rollovers.
Thereafter, Plaintiffs filed a timely notice of appeal and presented the following
issues:
I. Whether the trial court erred in holding that the statute
of limitations barred recovery for certain damages
claimed by Plaintiffs.
II. Whether the trial court erred in holding that Plaintiffs
were not entitled to recover, as general damages in a
legal malpractice action, fees paid for legal work that
was negligently performed.
III. Whether the trial court erred in granting a partial
summary judgment holding that Plaintiffs could not as
a matter of law recover any of the costs of prosecuting
this action as consequential damages for legal
malpractice.
IV. Whether erroneous evidentiary rulings by the trial court
prejudiced the record on which the court assessed
damages.
We address all of these issues below.
I. Statute of Limitations
Recently, the Tennessee Supreme Court addressed the issue of when the
statute of limitations begins to run in legal malpractice actions. Carvell v. Bottoms,
900 S.W.2d 23, 28-30 (Tenn. 1995). The court restated the two occurrences
necessary to begin the running of the statute of limitations and modified them to
avoid past confusion.
The first occurrence necessary to begin the running of the statute is the
plaintiff must suffer a legally cognizable or actual injury as a result of the defendant’s
negligence. Id. Prior to the decision in Carvell, judges, practitioners, and scholars
used the term “irremediable injury” instead of legally cognizable or actual injury. See
id. at 28. In Carvell, the supreme court changed the terminology.1 The second
1
In a footnote to their brief, Plaintiffs argue that this court should not apply Carvell
retroactively to their case if Carvell overruled prior precedent. It is the opinion of this court that
the supreme court did not overrule its earlier decisions. Although the court directed that courts
should no longer use the term “irremediable injury,” it did not expressly overrule or criticize any
of its earlier decisions. Moreover, the court did not attempt to provide definitions of the new
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occurrence necessary to begin the running of the statute of limitations is that “the
plaintiff must have known or in the exercise of reasonable diligence should have
known that this injury was caused by the defendant’s negligence.” Id. The court then
elaborated on the knowledge requirement and adopted a holding from a medical
malpractice case. The court stated:
It is not required that the plaintiff actually know that the injury
constitutes a breach of the appropriate legal standard in order to
discover that he has a ‘right of action’; the plaintiff is deemed to
have discovered the right of action if he is aware of facts
sufficient to put a reasonable person on notice that he has suffered
an injury as a result of wrongful conduct.
Id. at 29 (quoting Roe v. Jefferson, 875 S.W.2d 653, 657 (Tenn. 1994)).
Applying these requirements to this case, it is the opinion of this court that
the statute of limitations had run on those claims related to the IRA rollovers. In this
case, the legally cognizable or actual injury occurred at the very latest when Plaintiffs
began to incur expenses as a result of Defendants’ negligent advice. The earliest
evidence of this in the record is 19 October 1988. On this date, Plaintiffs’ accountant,
David Hinton, wrote a letter to the IRS in response to the IRS’s request for
information. The IRS letter, quoted in an earlier portion of this opinion, explained
that the IRS had noticed a conflict between the amounts reported by Plaintiffs and
those amounts reported by payers. Mr. Hinton’s response stated: “Please be advised
that the retirement plan distributions were rolled over to the John Kohl Company,
P.C., Profit-Sharing Plan.” As of the date of this letter or possibly even earlier,
Plaintiffs began incurring expenses directly related to Mr. Huffstutter’s advice on the
IRA rollovers. 2 Thus, Plaintiffs were actually injured at that time.
Plaintiffs correctly stated that the injury element is not met if it is contingent
on a third party’s actions or if there is a mere possibility or probability of injury.
terms. Thus, it seems the supreme court simply changed the terms to avoid the confusion caused
by the word “irremediable.” It appears the court’s previous decisions which used the term
“irremediable injury” may still be useful in deciding when a legally cognizable or actual injury
has occurred.
2
We could not find any direct evidence that Mr. Hinton charged Plaintiffs for his services.
Nevertheless, there is sufficient evidence in the record from which we can infer Plaintiffs
compensated Mr. Hinton for his services.
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Caledonia Leasing and Equip. Co. v. Armstrong, Allen, Braden, Goodman,
McBride & Prewitt, 865 S.W.2d 10, 17 (Tenn. App. 1992). Relying on this case,
Plaintiffs argue that the injury was still inchoate in October 1988 because the IRS had
not filed suit or issued a deficiency statement and Plaintiffs had not incurred any
attorney’s fees or other damages. We can not agree. Plaintiffs’ injuries were no
longer contingent on a third party’s actions or speculative once they began to incur
expenses related to the negligence.3 In addition, it is not necessary for Plaintiffs to
have suffered all the injurious effects of Defendants’ negligence for the statute to
begin running. Security Bank & Trust Co. v. Fabricating, Inc., 673 S.W.2d 860,
864-65 (Tenn. 1983).
It is the opinion of this court that Plaintiffs had the requisite knowledge at
the very latest on 24 October 1988. On that date, John Kolarich, Plaintiffs’ attorney,
wrote a letter. The letter clearly demonstrates Mr. Kolarich knew the IRS’s
investigation involved the rollover of funds into the Plan and Mr. Huffstutter had
advised Plaintiffs’ as to the rollovers. Mr. Kolarich’s knowledge is attributable to
Plaintiffs. Moody v. Moody, 681 S.W.2d 545, 546 (Tenn. 1984). It is not necessary
for a plaintiff to know the facts constitute a claim for legal malpractice. Instead, a
plaintiff only needs to be “aware of facts sufficient to put a reasonable person on
notice that he has suffered an injury as a result of wrongful conduct.” Carvell, 900
S.W.2d at 29 (quoting Roe v. Jefferson, 875 S.W.2d 653, 657 (Tenn. 1994)). It is the
opinion of this court that the knowledge that the IRS was investigating a transaction
recommended by an attorney without reservation is sufficient to put a reasonable
person on notice.
The statute of limitations as to any claims resulting from the IRA rollovers
began to run on 24 October 1988. As of that date, Plaintiffs had suffered an actual
injury and had the requisite knowledge. Plaintiffs filed their complaint on 1 May
1990. The trial court correctly determined the statute of limitations barred Plaintiffs’
claims because they filed their complaint more than one year after the cause of action
accrued. Tenn. Code Ann. § 28-3-104(a)(2) (Supp. 1996).
3
We note that our decision in this case does not mean that a plaintiff has to incur
monetary damages in order for there to be actually injury. It just happens to be so in this case.
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II. Damages
Plaintiffs’ second and third issues involve the different types of damages
available in a legal malpractice action. This case involves three different categories
of attorney’s fees. The first, initial fees, are those fees the plaintiff paid or agreed to
pay to the negligent defendant. The second, corrective fees, are those fees the
plaintiff incurred to correct the errors created by defendant’s negligence. The
existence of corrective fees distinguishes this case from a great majority of the cases.
To explain, every case does not include corrective fees. For example, when an
attorney fails to file a personal injury claim within the statute of limitations there are
no corrective fees. The injured party has incurred only the initial fees and has lost his
or her claim. Finally, the third category of fees, litigation fees, are those fees paid by
the plaintiff to prosecute the malpractice action. It is Plaintiffs’ contention that they
should be able to recover both their initial fees and their litigation fees and at the very
least one of the two.
A. Initial Fees
Plaintiffs primarily rely on Foster v. Duggin, 695 S.W.2d 526 (Tenn. 1985),
to support their argument that they are entitled to the initial fees and the litigation
fees. Although the specific facts of Foster are distinguishable from the present case,
the general holding of the case is useful. In Foster, the plaintiffs retained an attorney,
Mr. Duggin, on a contingency fee basis to represent them in a personal injury action.
Mr. Duggin committed malpractice when he failed to file the complaint within the
statute of limitations. As a result, the plaintiffs lost their claim. This is the typical
malpractice scenario. In such a case, the successful plaintiff is entitled to recover at
the very least the value of the lost claim. 7 Am Jur. 2d Attorneys at Law § 226
(1980).
The only issue before the Foster court was whether the trial court should
have reduced the malpractice award by the fee Mr. Duggin would have received had
he competently handled the case. Foster, 695 S.W.2d at 526. The trial court
concluded that Mr. Duggin was not entitled to a set off and the court of appeals
affirmed. The supreme court also agreed Mr. Duggin was not entitled to a set off and
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explained “the burden of [Mr. Duggin’s] incompetence should not be placed upon the
innocent client” and the plaintiffs “should not be required to assume the burden of
twice paying for legal representation.” Id. at 527. Thus, the plaintiffs recovered their
initial fees in a roundabout way. See also Bruce v. Olive, No. 03A01-9509-CV-
00310, 1996 WL 93580, at *5 (Tenn. App. 4 March 1996).
Although Foster was a contingency fee case, there is no reason why the
same logic can not be applied in this case. The Plaintiffs in the present case are
entitled to recover their initial fees with the exception that Defendants receive “credit
for expenses which were incurred on behalf of [Plaintiffs] which ultimately benefitted
[Plaintiffs].” Foster, 695 S.W.2d at 527. Defendants argue that allowing Plaintiffs
to recover their initial fees ultimately allows them to receive free legal services
because they will recover both the corrective fees and the initial fees. At first glance
this argument appears logical, but this conclusion is not necessarily the result dictated
by the case law. First, the corrective fees in this case are analogous to the value of
the lost claim in Foster, that is, the damages directly flowing from the malpractice.
Second, the justification of the supreme court in Foster that a plaintiff “should not be
required to assume the burden of twice paying for legal representation” refers to the
payment of the initial fees and the litigation fees. As is explained below, it is the
opinion of this court that Plaintiffs are not entitled to their litigation fees. Thus, in
the end Plaintiffs are having to pay certain fees for the work they had hoped to have
properly performed in 1983.
B. Litigation Fees
Plaintiffs argue that Foster stands for the proposition that litigation
expenses are recoverable as incidental damages. Plaintiffs cite the following
sentence: “The additional fees necessary to pursue this action are in the nature of
incidental damages flowing from Mr. Duggin’s breach of contract.” We can not agree
with Plaintiffs’ argument. Although the statement seems clear, a literal application
of the statement is inconsistent with the rest of the opinion. To explain, the statement
is inconsistent because if plaintiffs were able to recover their litigation expenses the
recovery of the initial fees would not be necessary to ensure that plaintiffs were not
“required to assume the burden of twice paying for legal representation.” Id.
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Moreover, in another portion of the opinion, the supreme court discussed the majority
view and explained that the litigation fees “are said to cancel out any fees which the
plaintiff would have owed the attorney had he performed competently.” Id. It is
clear that the supreme court intended to award the initial fees only. This is further
evidenced by the fact that the court limited its decision to a determination of this issue
only. Id. at 526. Thus, it is the opinion of this court that Foster does not stand for
the proposition that a plaintiff in a legal malpractice action may recover their
litigation fees.
It is further the opinion of this court that Plaintiffs are not entitled to their
litigation fees. A party may not recover attorney’s fees absent a contractual
agreement between the parties or a statutory provision. Goings v. Aetna Cas. &Sur.
Co., 491 S.W.2d 847, 848 (Tenn. App. 1972). Attorney’s fees are no more damages
in a legal malpractice action than they are in a personal injury case. Plaintiffs have
failed to convince this court that Tennessee’s courts should treat legal malpractice
claims differently than all other claims.
C. Initial Fees as Special or General Damages
In addition to determining that the law did not entitle Plaintiffs to recover
the initial fees, the trial court also determined the initial fees were special damages
and denied Plaintiffs’ request to amend their complaint to include a claim for the
initial fees as special damages. We disagree and hold that the initial fees are
recoverable as general damages.
The supreme court has defined general and special damages as follows:
“‘General damages are such as naturally and necessarily result from the wrong of
injury complained of, while special damages are such as naturally but not necessarily
result from the wrong or injury complained of.’” Inland Container Corp. v. March,
529 S.W.2d 43, 44 (Tenn. 1975) (quoting Caruthers, History of a Lawsuit §155 (8th
ed. 1963)). Initial fees as damages naturally result from legal malpractice. In all
malpractice cases, the plaintiff has retained an attorney presumably for a fee to
perform certain services. If malpractice occurs, the plaintiff may recover the fee
which is a natural part of the transaction. Moreover, the recovery of a fee paid to a
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negligent attorney is necessary to make the plaintiff whole. Thus, the trial court erred
when it determined the initial fees were special damages.
III. Expert Testimony
A. Samuel Butts
Following our review of this record we are of the opinion that the trial court
did not err in excluding portions of the testimony of Samuel Butts, Plaintiffs’ expert
witness. The trial court excluded portions of Mr. Butts’ testimony for two reasons:
1) Plaintiffs failed to seasonably supplement his expert witness testimony and 2) the
basis of his testimony lacked trustworthiness.
The trial court has discretion to determine the proper corrective action for
discovery abuses. This court will not disturb that determination unless the trial court
abused its discretion. Lyle v. Exxon Corp., 746 S.W.2d 694, 699 (Tenn. 1988). In
the instant case, Mr. Butts was deposed on 22 September 1995. Eight months later
on the Friday before the trial on Monday, Plaintiffs delivered a supplement to Mr.
Butts’s prior testimony. The supplement substantially altered his prior opinions.
During his deposition, Mr. Butts concurred with a damage memorandum of December
1992 that estimated Plaintiffs’ damages resulting from the “loss of use” of funds to
be $58,000.00. His supplement raised that amount significantly. On the morning of
trial, Plaintiffs produced another calculation raising the damage claim to $124,668.75.
Mr. Butts was also of the opinion in his deposition that $27,000.00 in attorney’s fees
were reasonable. His later statement raised that amount to $50,335.91.
There are certain factors for trial courts to consider when determining
appropriate sanctions for abuse of expert witness discovery. These are: 1) the
explanation given for the abuse; 2) the importance of the testimony; 3) the need for
time to prepare; and 4) the possibility of a continuance. See id. The trial court
entertained arguments from the parties on the application of these factors to the
admission of Mr. Butts’s testimony. In regard to the need for time to prepare to
address this substantial leap in the expert’s opinion of damages, the trial court
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commented: “I am concerned. It’s about a $68,000 jump and it would surprise me,
and it sounds like that’s a surprise to someone if they were not made aware of that till
three days before trial.” Considering the first factor in Lyle, the trial court found as
follows:
The Court finds that there is no justification for this unseasonable
response to a timely discovery response.
The purpose of Rule 26 and the purposes of scheduling
orders are to require that expert witnesses set forth their opinions
with certain sufficient clarity that the opponents may have the
opportunity to prepare to respond to those opinions.
It is clear from the record in the instant case that the trial court properly and fairly
considered the Plaintiffs’ proof and arguments regarding the failure to comply with
the discovery rules. Moreover, the trial court did not exclude all of Mr. Butts’
testimony, but held an appropriate sanction was the exclusion of those portions of Mr.
Butts’s testimony that exceeded his earlier discovery responses. We are of the
opinion this was not an abuse of the trial court’s discretion.
The trial court had other reasons for limiting Mr. Butts’s testimony. The
trial court found the increased damages amount was contrary to Mr. Butts’s original
deposition testimony and seemed untrustworthy. The court noted: “I have some
concerns over the trustworthiness of Mr. Butts’ [sic] testimony, specifically dealing
with these calculations that were not even prepared by him that presume individuals
living to be 115 years old to the year 2056. Frankly some of those figures seemed
absurd.” Tennessee Rule of Evidence 703 provides: “The court shall disallow
testimony in the form of an opinion or inference if the underlying facts or data
indicate lack of trustworthiness.”
Determinations concerning the admission of expert testimony are left to the
sound discretion of the trial court and will not be disturbed absent an abuse of that
discretion. Buchanan v. Harris, 902 S.W.2d 941, 945 (Tenn. App. 1995). In the
instant case, the trial court was afforded the opportunity to observe and consider the
testimony offered by Mr. Butts over the course of two days. Plaintiffs offered no
indication that the court’s finding of the lack of trustworthiness was an arbitrary
exercise of discretion. The court did not abuse its discretion in striking portions of
Mr. Butts’s testimony. Therefore, we are of the opinion this issue is without merit.
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B. Larry Crabtree
The trial court also excluded the testimony of Plaintiffs’ co-counsel, Larry
Crabtree. Plaintiffs proposed to offer Mr. Crabtree’s testimony to explain and justify
the fees charged by King & Ballow to correct defendants’ errors.
Cannon 5 of the Code of Professional Conduct provides that “a lawyer
should exercise independent professional judgment on behalf of a client.”
Disciplinary Rule 5-101(B) mandates:
(B) A lawyer shall not accept employment in contemplated or
pending litigation if the lawyer knows or it is obvious that the
lawyer or a lawyer in the lawyer's firm ought to be called as a
witness, except that the lawyer may undertake the employment
and the lawyer or a lawyer in the lawyer's firm may testify:
(1) If the testimony will relate solely to an uncontested matter.
(2) If the testimony will relate solely to a matter of formality and
there is no reason to believe that substantial evidence will be
offered in opposition to the testimony.
(3) If the testimony will relate solely to the nature and value of
legal services rendered in the case by the lawyer or the lawyer's
firm to the client.
(4) As to any matter, if refusal would work a substantial
hardship on the client because of the distinctive value of the
lawyer or the lawyer's firm as counsel in the particular case.
This rule embodies important public policy considerations and ultimately protects
clients. Ethical Consideration 5-9 recognizes the costs to a client when an attorney/
witness refuses to withdraw as counsel providing: “If a lawyer is both counsel and
witness, the lawyer becomes more easily impeachable for interest and thus may be a
less effective witness. Conversely, the opposing counsel may be handicapped in
challenging the credibility of the lawyer . . . . An advocate who becomes a witness
is in the unseemly and ineffective position of arguing the advocate’s own credibility.”
Finally, Ethical Consideration 5-10 mandates: “Where the question arises, doubt
should be resolved in favor of the lawyer testifying and against becoming or
continuing as an advocate.” These guidelines are clear. An attorney must steadfastly
guard against becoming both an advocate and a witness.
This court has held that trial courts “have a broad range of options available
to insulate trials from ethical taint.” Hilton v. Crawford, No. 03A01-9102CV33,
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1991 WL 261872, at *3 (Tenn. App. 13 Dec. 1991). In Hilton, the court concluded:
“[T]he mere fact that counsel is a potential witness is not sufficient reason for
disqualification. It may very well be, however, if counsel wish to become a witness
the Trial Court might exclude their testimony. . . .” Id.
Plaintiffs argue the exception contained in Disciplinary Rule 5-101(B)(3)
applies to Mr. Crabtree’s testimony. We disagree. The issues which Mr. Crabtree’s
testimony would address are more involved than merely stating the “nature and value
of legal services rendered.” In this case, Mr. Crabtree’s testimony would necessarily
address highly disputed issues.4 In other words, the testimony and cross-examination
would involve the appropriateness of the corrective actions taken, the results of the
corrective actions taken, alternative actions which Plaintiffs could have taken, the
cost of the corrective actions, estimates of the cost of alternative actions, the propriety
of the fees actually incurred, and so on. As explained by the trial court, this is not a
case where the testifying attorney simply lays the foundation for the trial court to
make an award of attorney’s fees.
Plaintiffs also argue the trial court should have permitted Mr. Crabtree to
testify because excluding his testimony worked a hardship on Plaintiffs. The Sixth
Circuit has noted that “[a] self-inflicted injury is not a hardship.” General Mill
Supply Co. v. SCA Servs., Inc., 697 F.2d 704, 713 (6th Cir. 1982). The court in
General Mill stated:
Now they turn to the United States District Court and say in
effect: ‘Yes, judge, we know that the canons would never allow
[the attorney] to represent General Mill in an abuse of process
suit, and also be its star witness. But you can’t do anything to us,
because, knowing what was down the road, by our own deliberate
action we created a situation where [the attorney] is indispensable
to General Mill and his withdrawal a hardship. So, judge, you’ll
just have to swallow it.
. . . [T]he duty to withdraw is plainest when the need to
be a witness is well known in advance. The canon would be
absurd and indefensible if it excused compliance when the
dependence of the client on the lawyer had been created in fact of
the knowledge that the dependence would be used to frustrate the
4
One reason for this conclusion is that the corrective work never rectified the problems
with the plan. As a result, Plaintiffs terminated the Plan on 19 April 1996. In addition,
Defendants contend, in part, that King & Ballow spent a great deal of time on project which they
never completed.
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enforcement of the canon. The term “hardship” is certainly
capable of rational interpretation, of meaning a situation the
alleged victim of the hardship has not knowingly caused and
could not reasonable foresee.
Id. at 714-15. After hearing the proffered Crabtree testimony, the trial court found:
“This is exactly the type of situation that the DR 5-101 is intended to address. It puts
lawyers in the most uncomfortable position to be both advocate and witness. This is
not a situation that was not unforeseeable.” Attorneys cannot be allowed to create
client hardships in order to force the court to accept prohibited testimony.
In addition, the trial court in this case specifically found Plaintiffs suffered
no substantial harm in the exclusion of Mr. Crabtree’s testimony. We agree.
Plaintiffs had an independent expert, Samuel Butts, who could base his opinions
about the necessity and reasonableness of the corrective work upon Crabtree’s
representations to him. Based upon the record, the trial court did not abuse its
discretion in excluding the testimony of co-counsel Larry Crabtree from the trial in
this cause.
IV. Conclusion
It results that the judgment of the trial court is affirmed in part, reversed in
part, and remanded. On remand, the trial court shall determine the appropriate
amount of the initial fees payable to Plaintiffs as damages. Costs on appeal are taxed
equally to Plaintiffs and Defendants.
_______________________________
SAMUEL L. LEWIS, JUDGE
CONCUR:
_____________________________________
BEN H. CANTRELL, J.
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_____________________________________
WILLIAM C. KOCH, JR., J.
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