Hills v. Arensdorf ( 2022 )

Appellate Case: 21-3118 Document: 010110721553 Date Filed: 08/08/2022 Page: 1
FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT August 8, 2022
_________________________________
Christopher M. Wolpert
Clerk of Court
WENDY HILLS,
Plaintiff - Appellant,
and
BRENT HILLS,
Plaintiff,
v. No. 21-3118
(D.C. No. 5:20-CV-04037-TC-JPO &
GERARD ARENSDORF, 5:20-CV-04074-TC-JPO)
(D. Kan.)
Defendant - Appellee.
_________________________________
ORDER AND JUDGMENT *
_________________________________
Before HOLMES, MORITZ, and CARSON, Circuit Judges.
_________________________________
Wendy Hills brought state-law claims against Gerard Arensdorf, an accountant
who allegedly performed unauthorized legal services for her father in the days before
his death. The district court dismissed those claims under Federal Rule of Civil
Procedure 12(b)(6), and Wendy 1 appeals. For the reasons below, we affirm.
*
This order and judgment is not binding precedent, except under the doctrines
of law of the case, res judicata, and collateral estoppel. But it may be cited for its
persuasive value. See Fed. R. App. P. 32.1(a); 10th Cir. R. 32.1(A).
1
To avoid confusion, we refer to Wendy and other members of the Hills
family by their first names.
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Background
We begin by setting out the events that gave rise to Wendy’s lawsuit,
described in the light most favorable to Wendy based on the well-pleaded factual
allegations in her operative complaint. 2 See Renfro v. Champion Petfoods USA, Inc,
25 F.4th 1293, 1300 (10th Cir. 2022). The dispute centers on assets owned by
Wendy’s father, Douglas Hills, who died intestate (without a will) in July 2018.
Twelve days before his death, Douglas signed a one-page document assigning his
interest in a farming business—valued at about $10 million—to his wife Junelle
Hills, in her capacity as a trustee of a previously unfunded trust that he created in
1986. Junelle is also a beneficiary of the trust, as are Wendy and Brent Hills,
Douglas’s two children from a prior marriage.
Wendy asserts that Junelle unduly influenced Douglas into assigning the farm
assets to the trust. The assignment was drafted by Arensdorf, Douglas’s longtime
accountant who is not an attorney, while Douglas was recovering from a heart attack
and shortly after he had received a terminal cancer diagnosis. According to the
complaint, Douglas never asked Arensdorf to draft the assignment; Arensdorf did so
at Junelle’s request and “relied on [her] representations about what [Douglas]
wanted.” App. vol. 1, 113–14. Nor did Douglas understand, the complaint alleges,
2
In describing the facts, we also rely (as the district court did) on information
in key documents referenced in the complaint because they are central to the
complaint and neither party disputes their authenticity. See Goodwill Indus. of Cent.
Okla., Inc. v. Phila. Indem. Ins. Co., 21 F.4th 704, 709 (10th Cir. 2021), cert. denied,
142 S. Ct. 2779 (2022).
2
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that the assignment would effectively “reverse [his] longstanding estate plan[]” by
allowing Junelle to receive trust distributions from a farm business that he had
“intentionally kept separate from her throughout their marriage.” Id. at 115. The
complaint also alleges that had Douglas not executed the assignment, a prenuptial
agreement would have prevented Junelle from receiving the farm assets. Instead,
those assets would have passed to Wendy and Brent alone (as Douglas allegedly
intended) through intestate succession.
After Douglas died, Wendy filed lawsuits in state and federal court
challenging the assignment’s validity. 3 She named Junelle as a defendant in those
cases, but not Arensdorf. The lawsuits eventually settled, and the parties agreed that
(1) the assignment was “void ab initio, unenforceable, and transferred none of the
[f]arming [i]nterest[] to the [t]rust”; (2) Wendy and Brent would receive sole control
of Douglas’s interest in the farming business; and (3) in exchange for a release of
claims, Junelle would receive payments totaling $1.35 million from Douglas’s estate.
Id. at 235.
Around the same time as the settlement, Wendy filed this lawsuit against
Arensdorf in federal court. 4 She alleged that by preparing the assignment and
presenting it to Douglas, Arensdorf committed legal malpractice and engaged in the
unauthorized practice of law under the Kansas Consumer Protection Act (KCPA),
3
In the state-court lawsuit, Wendy also sued on behalf of Douglas’s estate.
4
Brent also sued Arensdorf, and the district court consolidated his case with
Wendy’s. Only Wendy’s appeal is before us, however, because Brent did not appeal
the district court’s decision.
3
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Kan. Stat. Ann. § 50-6,142. The district court determined that Wendy did not
adequately plead either claim and dismissed the complaint. See Fed. R. Civ. P.
12(b)(6). Wendy appeals.
Analysis
Our review is de novo when, as here, a plaintiff appeals an order dismissing a
complaint under Rule 12(b)(6) for failure to state a claim. Renfro, 25 F.4th at 1300.
To avoid a Rule 12(b)(6) dismissal, the complaint must allege sufficient facts to
“state a claim to relief that is plausible on its face.” Id. (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). Here, Wendy argues that the district court
improperly dismissed her complaint against Arensdorf because she stated facially
plausible claims under Kansas law for legal malpractice and unauthorized practice of
law. See id. at 1301 (explaining that forum state’s law applies in diversity-
jurisdiction case). We address those claims in turn below.
I. Legal Malpractice
Wendy first argues that the district court improperly dismissed her legal-
malpractice claim. To state such a claim, Wendy must allege that (1) Arensdorf owed
her “the duty of the attorney to exercise ordinary skill and knowledge”; (2) he
breached that duty; (3) she suffered “actual loss or damage”; and (4) his breach was
the cause of that injury. Canaan v. Bartee, 72 P.3d 911, 914 (Kan. 2003) (quoting
Bergstrom v. Noah, 974 P.2d 531, 553 (Kan. 1999)). The district court concluded that
Wendy inadequately pleaded the first element because Arensdorf owed no duty to
4
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Wendy, who was not his client. 5
As Arensdorf points out, Kansas follows the general rule, rooted in privity of
contract, that an attorney only owes a duty to—and thus may only be sued for
malpractice by—his or her client. See Pizel v. Zuspann, 795 P.2d 42, 48
(Kan.), modified on denial of reh’g, 803 P.2d 205 (Kan. 1990). Under a
straightforward application of this rule, Wendy’s claim would fail because the
complaint alleges that Douglas, not Wendy, was Arensdorf’s client. Nevertheless, to
avoid dismissal, Wendy invokes a line of cases recognizing malpractice liability
“when an attorney renders services that the attorney should have recognized as
involving a foreseeable injury to a third-party beneficiary of the [attorney-client]
contract.” Id. In other words, Wendy contends that Arensdorf owed her a duty of
care, even though she was not his client, because she was a third-party beneficiary of
the legal services he performed for Douglas.
The district court assessed Wendy’s third-party-beneficiary theory under the
framework set out in Johnson v. Wiegers, 46 P.3d 563, 568 (Kan. Ct. App. 2002). As
relevant here, Johnson reiterated a principle derived from several Kansas appellate
cases that an attorney owes no duty to a third-party nonclient, and thus cannot be
liable for malpractice, “if the attorney and client never intended for the attorney’s
5
In reaching this conclusion, the district court assumed without deciding that
Kansas recognizes a cause of action for legal malpractice against a nonlawyer like
Arensdorf. We resolve this appeal under the same assumption because, although the
issue is not mentioned in the briefs, the parties confirmed at oral argument that they
also assumed such a claim exists under Kansas law.
5
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work to benefit the third party.” 46 P.3d at 568. Applying that principle, the district
court concluded that Wendy could not show that Arensdorf’s work (drafting the
assignment and submitting it to Douglas) was intended to benefit her. She could not
do so, the district court explained, because “[t]he assignment transferred Douglas’s
property in a way that diluted, if not entirely eliminated, [her] potential interest in the
property.” App. vol. 2, 306.
In response, Wendy argues that the district court overlooked material evidence
when rejecting her claim under Johnson. Specifically, she says that it erroneously
treated the assignment as the sole evidence of Douglas’s intent, ignoring extrinsic
evidence about Douglas’s long-held desire and oral promises to pass the farm assets
solely to his children. According to Wendy, the district court was free to consider
such evidence because the complaint plausibly alleges that Junelle unduly influenced
Douglas into signing the assignment. See Cresto v. Cresto, 358 P.3d 831, 834–35
(Kan. 2015) (allowing party “contesting a testamentary document” on undue-
influence grounds to offer evidence of “‘suspicious circumstances surrounding the
making of the [testamentary document]’” (alteration in original) (quoting In re Est. of
Farr, 49 P.3d 415, 430 (Kan. 2002))). And if considered, Wendy says, the extrinsic
evidence shows that “Douglas intended to benefit her . . . with the farming interests.”
Aplt. Br. 20.
Wendy’s extrinsic-evidence argument falls short. At best, the extrinsic
evidence referenced in the complaint suggests that before executing the assignment,
Douglas intended to pass the farm assets to his children rather than Junelle. But
6
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Douglas’s pre-assignment intent says nothing about the dispositive issue on which
Arensdorf’s liability turns—whether Douglas “intended for [Arensdorf’s] work to
benefit [Wendy].” Johnson, 46 P.3d at 568 (emphasis added). And on that score,
Wendy points to no evidence, extrinsic or otherwise, suggesting that she was an
intended beneficiary of Arensdorf’s work. To the contrary, her complaint alleges just
the opposite: that Arensdorf’s work harmed her because the assignment he prepared
transferred the farm assets to a trust controlled by Junelle, meaning she and Brent
would no longer receive and control those assets outright. So even assuming Douglas
previously wanted to benefit Wendy by passing his interest in the farming business to
her, she does not allege (as she must) that Douglas intended to benefit her through
Arensdorf’s legal work.
Wendy’s assertion that Junelle unduly influenced Douglas into executing the
assignment only reinforces our conclusion that Wendy fails to establish her intended-
beneficiary status as to Arensdorf’s work. The premise behind Wendy’s undue-
influence allegation, as the complaint reveals, is that Douglas “never instructed
[Arensdorf] to prepare the assignment”; Arensdorf prepared it at Junelle’s request,
and Junelle persuaded Douglas to sign it “under highly suspicious circumstances.”
App. vol. 1, 113. This argument is self-defeating. Simply put, if Douglas did not want
Arensdorf’s work performed in the first place, he hardly could have intended Wendy
to benefit from that work. Thus, Wendy’s undue-influence allegation does not save
her malpractice claim.
Because Wendy fails to allege that Douglas and Arensdorf “intended for
7
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[Arensdorf’s] work to benefit [her],” Arensdorf owed her no duty as a third-party
nonclient. 6 Johnson, 46 P.3d at 568. Wendy therefore cannot establish the first
element of her legal-malpractice claim, and the district court properly dismissed it.
II. Unauthorized Practice of Law
Next, Wendy challenges the dismissal of her claim that Arensdorf violated the
KCPA by engaging in the unauthorized practice of law. See Kan. Stat. Ann. § 50-
6,142. In particular, she disputes the district court’s view that she could not bring
such a claim because she was not “aggrieved” by Arensdorf’s purported violation of
the statute. Kan. Stat. Ann. § 50-6,142(c)(3); see also Kan. Stat. Ann. § 50-634(b). A
person is aggrieved for KCPA purposes only if (1) the defendant’s violation
“adversely affected the [person’s] legal rights”; and (2) there is “a causal connection
between the [violation] and the claimed injury.” Schneider v. Liberty Asset Mgmt.,
251 P.3d 666, 671 (Kan. Ct. App. 2011). Although the district court found both
requirements lacking here, we need only discuss the former to dispose of Wendy’s
appeal.
As to the adverse-effect requirement, the district court determined that Wendy
“had no enforceable rights in the property that the [a]ssignment [could have]
6
Based on this conclusion, we need not reach the district court’s determination
that Wendy’s malpractice claim also fails because she and Douglas were adversaries
and because Arensdorf owed her no duty under a multi-factor balancing test. See
Johnson, 46 P.3d at 568. Wendy’s failure to show that Douglas intended Arensdorf’s
legal work to benefit her is sufficient, by itself, to affirm the district court’s ruling.
See Wilson-Cunningham v. Meyer, 820 P.2d 725, 730 (Kan. Ct. App. 1991) (“[I]t
would be appropriate to deny liability solely on the basis that the legal representation
. . . was not intended to benefit [the nonclients].”).
8
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harmed.” App. vol. 2, 308; see also Finstad v. Washburn Univ. of Topeka, 845 P.2d
685, 691 (Kan. 1993) (clarifying that aggrievement refers “only to those who have
rights which may be enforced at law and whose pecuniary interest may be affected”
(quoting Fairfax Drainage Dist. v. Kansas City, 374 P.2d 35, 41 (Kan. 1962))). The
district court based its conclusion on the fact that Douglas had no will or other
document granting Wendy “any enforceable rights in or title to” his interest in the
farming business. App. vol. 2, 304. Even so, Wendy responds that she had “legal
inheritance rights” to Douglas’s interest under Kansas’s intestate-succession laws.
Aplt. Br. 23. That is, she says Arensdorf’s unauthorized legal practice adversely
affected her right to “inherit[] property she would have [otherwise] inherited.” Id.But no such right exists under Kansas law. In Kansas, an heir who expects to
inherit property from a parent has no legally enforceable rights in such property until
the parent’s death. See Kan. Stat. Ann. § 59-502 (establishing that intestate
decedent’s property passes “at the time of death”); McKay’s Est. v. Davis, 491 P.2d
932, 934 (Kan. 1971) (“[T]here were no heirs of or vested rights in the estate . . .
until [the decedent’s] death.”). So Wendy’s expectations about how Douglas would
distribute the farm assets did not give her any “legal rights” that Arensdorf’s
purported KCPA violation could have adversely affected. 7 Schneider, 251 P.3d at
7
For this reason, it makes no difference whether, as Wendy contends, “a
plaintiff may bring a KCPA claim even though the defendant’s misconduct does not
produce injury immediately at the time of the conduct.” Aplt. Br. 25–26. Even if that
is true, the plaintiff must nevertheless possess some enforceable right that can be
injured by the defendant’s violation. See Finstad, 845 P.2d at 691. And as explained
9
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671; see also Finstad, 845 P.2d at 691 (noting that aggrievement “does not refer to
persons who may happen to entertain desires on the subject, but only to those who
have rights which may be enforced at law and whose pecuniary interest may be
affected” (quoting Fairfax, 374 P.2d at 41)).
Wendy’s argument fares no better if, as Wendy suggests, we reframe her
asserted right as the “right to be free from undue-influence-caused injury.” Rep. Br.
15. To state the obvious, the complaint nowhere alleges that Wendy herself
experienced undue influence. Rather, it alleges that Junelle unduly influenced
Douglas into executing the assignment. Wendy supplies no authority recognizing her
right not to have her father’s intestate estate plans altered through undue influence. 8
No matter how those plans changed—whether voluntarily or through undue
influence—Wendy had no enforceable rights to Douglas’s intestate property.
In short, Wendy is not aggrieved under the KCPA because she lacked
enforceable legal rights in the farm assets that Arensdorf’s allegedly unauthorized
legal work could have adversely affected. As a result, the district court did not err in
dismissing her KCPA claim.
Conclusion
Wendy inadequately pleaded material elements of her legal-malpractice and
above, Wendy never had a right to inherit the farm assets; she merely expected to
receive them when Douglas died.
8
The closest Wendy gets to providing such authority is Cresto, 358 P.3d 831.
But Cresto is distinguishable—there, the plaintiffs intervened in probate proceedings
to challenge a will that replaced an earlier, written estate plan benefiting them. See id.
at 835, 838.
10
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KCPA claims. Accordingly, the district court properly dismissed her complaint for
failure to state a claim. 9
Entered for the Court
Nancy L. Moritz
Circuit Judge
9
Because we affirm based on Wendy’s failure to state prima facie elements of
her claims, we do not reach Arensdorf’s alternative arguments asking us to affirm
based on affirmative defenses raised below but not considered by the district court.
11