Peggy Crist v. Paul Kelly Loyacono ( 2009 )

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2009-CA-01547-SCT
PEGGY CRIST, THERESEA EDWARDS,
PATRICIA GUTHRIE, JANE HAMILTON, HELEN
HEARD, BERTHA MIXON, JENNIE PARKER,
JAMES REED, JR., GLENDA RIVERS, PAMELA
ROBINSON, KAREN THORNTON, VIRGINIA
TOWNSEND, VERA WELLS, MARY
WHITTINGTON, LINDA WILLIAMS AND PEGGY
WINTERS
v.
PAUL KELLY LOYACONO AND E. SCOTT
VERHINE
DATE OF JUDGMENT: 08/20/2009
TRIAL JUDGE: HON. KOSTA N. VLAHOS
COURT FROM WHICH APPEALED: WARREN COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANTS: DAVID L. MINYARD
TIFFANY LEIGH KILPATRICK
ATTORNEYS FOR APPELLEES: GLENN GATES TAYLOR
CHRISTY MICHELLE SPARKS
NATURE OF THE CASE: CIVIL - LEGAL MALPRACTICE
DISPOSITION: REVERSED AND REMANDED - 04/21/2011
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
BEFORE WALLER, C.J., DICKINSON, P.J., AND KITCHENS, J.
DICKINSON, PRESIDING JUSTICE, FOR THE COURT:
¶1. Sixteen former clients sued two lawyers who had represented them in mass-tort
litigation, claiming the lawyers had breached their fiduciary duty by prematurely settling
their cases in order to maximize attorney fees. Responding to a motion for summary
judgment, the former clients produced a witness—a mass-tort lawyer whom the defendant
lawyers had associated, and then fired—who testified that he had settled numerous similar
cases for much more than the former clients received. The lawyer also produced a settlement
document he had prepared, in part, by using another lawyer's matrix as a go-by.
¶2. The trial judge—finding that the lawyer’s testimony and matrix were inadmissible
hearsay, and that the clients were required to, but could not, prove they would have won their
cases at trial—granted summary judgement. We hold that the clients were not required to
prove they could have won their underlying case in order to pursue their breach of fiduciary
claim against their lawyers, and that the trial court erred in excluding the lawyer’s testimony.
FACTS
¶3. Additional facts and background of this twelve-year-old case, on its second trek to this
Court, were previously reported.1
¶4. Upon learning that attorney Keith Morgan was amassing clients in litigation against
American Home Products Corp.2 (“AHP”), attorney E. Scott Verhine advised Morgan that
he could produce some clients. Verhine, together with attorney Paul Kelly Loyacono, signed
up fifty-five clients who claimed to have used AHP’s Fen-Phen product.
¶5. Verhine and Loyacono then associated Morgan, agreeing that he would receive
seventy-five percent of the attorney fees generated by the fifty-five clients. When Morgan
filed suit, neither Loyacono nor Verhine signed the complaint as attorneys of record.
1
Our first review of this case involved a statute-of-limitations issue, and we determined
some of the plaintiffs were time-barred. See Channel v. Loyacono, 954 So. 2d 415 (Miss. 2007).
The instant case presents the same underlying legal-malpractice claims of the plaintiffs whose claims
were not time-barred by Channel.
2
Now known as Wyeth, Inc.
2
¶6. After roughly a year, Morgan and his law firm engaged AHP in settlement
negotiations concerning hundreds of their clients, including the fifty-five provided by
Loyacono and Verhine. Shortly thereafter, Loyacono and Verhine contacted AHP and began
secretly negotiating a settlement of their fifty-five clients’ cases. Of the fifty-five original
clients, thirty-four (including appellants) accepted settlement offers obtained directly by
Loyacono and Verhine. Under these settlements, Loyacono and Verhine received one-
hundred percent of the attorney fees.
¶7. Morgan developed a “settlement matrix” which classified his clients into thirteen
graduated levels based on injury type and severity. A $39-million settlement was reached
with AHP. Of the twenty-one clients that did not accept settlements negotiated by Loyacono
and Verhine, some were part of the settlement negotiated by Morgan et al. According to
Morgan’s sworn testimony and his matrix, the plaintiffs that did accept the settlements
negotiated by Loyacono and Verhine would have received larger awards had they remained
part of the Morgan settlement group.
¶8. The plaintiffs that did accept the offers negotiated by Loyacono and Verhine filed suit
against them alleging, among other things, breach of fiduciary duty in the manner in which
they conducted the settlement negotiations and apportioned the proceeds.
¶9. Following discovery, Loyacono and Verhine moved in limine to exclude Morgan’s
settlement matrix and any testimony from Morgan about his settlement negotiations on the
grounds that it was hearsay and lacked supporting documents. Loyacono and Verhine also
moved for summary judgment on all the claims, arguing in relevant part that the plaintiffs
had not produced any evidence that they would have succeeded in the underlying case
3
against AHP, which Loyacono and Verhine argued was essential to any legal-malpractice
claim. They also argued that the exclusion of the Morgan settlement matrix and related
testimony meant that the plaintiffs no longer had any proof of damages, another essential
element.
¶10. The trial court agreed, finding that Morgan’s matrix and testimony “were based, to
a degree, on another attorney’s matrix” and were “inadmissible on the grounds of hearsay,
lack of any supporting documentation, the failure to designate Morgan as an expert, and
speculation.” The court then granted the defendants’ motion for summary judgment because
“Plaintiffs were required to make out a prima facie case that, if Plaintiffs had not entered into
the settlements at issue, they would have prevailed on their underlying claims against AHP,
and they would have been awarded a monetary sum greater than the settlements negotiated
by Defendants.” 3
¶11. The plaintiffs appealed, presenting two issues:
1. Whether a legal-malpractice claim based on a breach-of-fiduciary-duty
theory requires proof of success and a larger award in the underlying
action; and
2. Whether the trial court abused its discretion in excluding the Morgan
settlement matrix and all of Morgan’s testimony relating to settlement
negotiations.
ANALYSIS
1. Whether a Legal-Malpractice Claim Based on a Breach-of-Fiduciary-Duty Theory
Requires Proof of Success and a Larger Award in the Underlying Action.
3
Emphasis original.
4
¶12. In reviewing a trial court's grant or denial of summary judgment, the well-established
standard of review is de novo. Summary judgment is appropriate where “the pleadings,
depositions, answers to interrogatories and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.” 4 The evidence must be viewed in the light most
favorable to the party against whom the motion has been made.5
¶13. Review of a trial court’s suppression of evidence is reviewed under an abuse-of-
discretion standard.6 Even where an abuse of discretion on an evidentiary issue is found,
“this Court ‘will not reverse unless the error adversely affects a substantial right of a party.’”7
A client’s breach-of-fiduciary-duty claim against an attorney does not
require proof that the client would have won at trial.
¶14. It is true – and well established – that a plaintiff in a negligence-based malpractice
action must establish proximate cause by the so-called “trial-within-a-trial” test. That is to
say, the client “must show that, but for [his] attorney's negligence, he would have been
successful in the prosecution or defense of the underlying action.” 8 But we have never
required a legal-malpractice plaintiff alleging breach of fiduciary duty to establish that, but
for the breach, the plaintiff would have won the underlying case. Rather, the proof of
4
Miss. R. Civ. P. 56(c).
5
Duckworth v. Warren, 10 So. 3d 433, 436–37 (Miss. 2009) (internal citations and
quotations of cases omitted).
6
Haggerty v. Foster, 838 So. 2d 948, 958 (Miss. 2002).
7
Id. (quoting In re Estate of Mask, 703 So. 2d 852, 859 (Miss. 1997); Terrain Enters., Inc.
v. Mockbee, 654 So. 2d 1122, 1131 (Miss. 1995)). See also M.R.E. 103(a).
8
Wilbourn v. Stennett, Wilkinson & Ward, 687 So. 2d 1205, 1215 (Miss. 1996).
5
proximate cause in such cases is “to be tailored to the injury the client claims and the remedy
he elects.”9 This means that expert testimony is not always necessary.10
¶15. The law recognizes a clear distinction between allegations of legal malpractice based
on negligence (sometimes called a breach of the standard of care) and those based on breach
of fiduciary duty (sometimes called a breach of the standard of conduct).11 When a legal-
malpractice claim is based on an allegation of breach of fiduciary duty, the plaintiff must
establish (1) the existence of an attorney-client relationship; (2) the acts constituting a
violation of the attorney’s fiduciary duty; (3) that the breach proximately caused the injury;
and (4) the fact and extent of the injury.12
¶16. This dichotomy is consistent with the differing characters of these two theories.
Because attorneys are afforded a degree of professional autonomy, proof of success in the
underlying case is an appropriate test for proximate cause in a negligence-based action
because it ensures that attorneys are only held professionally liable where their failures to
adhere to the standard of care actually impacted the plaintiff’s interests in the case. But an
9
Singleton v. Stegall, 580 So. 2d 1242, 1245 (Miss. 1991).
10
See, e.g., Lane, 873 So. 2d 92, 99 (Miss. 2004) (“[W]hen the claim is for breach of the
standard of conduct [i.e. breach of fiduciary duty], we conclude that lack of expert testimony should
not preclude the issue from being heard by a jury.”).
11
See, e.g., Lane, 873 So. 2d at 98 (“legal malpractice may be a violation of the standard of
care . . . or the breach of a fiduciary duty”) (citing Hartford Acc. & Indem. Co. v. Foster, 528 So.
2d 255, 284 (Miss. 1988) (Prather, J., dissenting)).
12
Foster, 528 So. 2d at 284–85 (citing Hickox v. Holleman, 502 So. 2d 626, 634 (Miss.
1987); Hutchinson v. Smith, 417 So. 2d 926 (Miss. 1982); Thompson v. Erving's Hatcheries, Inc.,
186 So. 2d 756 (Miss. 1966)).
6
attorney’s breach of his fiduciary duties to his client may cause injury to the client entirely
separate from the merits of the underlying case.
¶17. To illustrate, suppose a lawyer receives a client’s settlement check in a doubtful claim,
but procrastinates negotiating the check. Meanwhile, the defendant files bankruptcy, the
check is no longer good, and the client receives nothing. It is no defense to the client’s
lawsuit against the procrastinating lawyer that the client can not prove that he would have
won at trial because the underlying claim was doubtful. The same is true here. The
fiduciary-duty claims against Loyacono and Verhine survive, even absent a showing that the
plaintiffs would have won the underlying Fen-Phen lawsuit against AHP.
Morgan’s testimony was not hearsay, and was sufficient to establish a
genuine issue of material fact as to whether the clients would have
received a larger settlement.
¶18. The defendant-attorneys argue in the alternative that summary judgment was proper
because the plaintiffs’ only proof of damages—Keith Morgan’s settlement matrix and related
testimony—is inadmissible. But even if we agreed that the trial court properly excluded the
matrix, it was not the only probative evidence of damages. In his deposition, Morgan
testified regarding the amounts actually received by his clients from AHP. This testimony
was not an out-of-court statement, and was sufficient to create a factual question for the jury.
¶19. Because the standard applied by the trial court was overly restrictive, we reverse the
grant of summary judgment as to the fiduciary-duty claims and remand the matter to the trial
court for a ruling on the summary-judgment motion applying the proper standard.13
13
The plaintiff-appellants concede that summary judgment was properly granted as to their
negligence-based claims.
7
2. Whether the Trial Court Erred in Excluding Keith Morgan’s Matrix and Testimony.
¶20. The trial court ruled in limine that the settlement matrix prepared by Keith Morgan,
along with all “related testimony” was inadmissible hearsay, inasmuch as it was partly based
on a similar matrix prepared by another attorney. The court also apparently considered the
matrix and related testimony to be opinion evidence within the scope of M.R.E. 702, and
ruled that since Morgan was not designated as an expert, he could not give such opinions.
The plaintiffs argue that the excluded evidence was fact, not opinion, and that Morgan’s
testimony was based on personal knowledge and therefore not hearsay.
¶21. Hearsay is an out-of-court statement offered to prove the truth of the matter asserted.14
So for an out-of-court statement to be admissible, it must either be offered for some other
proper purpose, or fall into one of the enumerated exceptions to the general hearsay rule. For
the purposes of analysis, the written matrix is considered separately from Morgan’s related
testimony.
A. Admissibility of the Morgan Settlement Matrix
¶22. The Morgan Matrix is obviously an out-of-court statement. The document shows the
thirteen classifications and corresponding settlement amounts that Morgan used to distribute
the $39-million payment received from AHP. Therefore, if offered for the purpose of
establishing the fact of those classifications and settlement amounts, it would certainly
constitute hearsay. The plaintiff-appellants did not argue in the trial court—nor do they
argue on appeal—that the Morgan Matrix nevertheless falls into one of the hearsay
exceptions that would allow the matrix to be admitted into evidence, so it is not necessary
14
M.R.E. 801(c).
8
to continue the inquiry. The trial judge did not abuse his discretion in ruling that the Morgan
Matrix was hearsay and therefore inadmissible as evidence.
¶23. We emphasize that this holding is limited solely to the issue of the admissibility of the
Morgan Matrix as evidence. We offer no opinion as to the admissibility of the matrix for
other purposes, such as those contemplated by the exceptions listed under M.R.E. 803.
B. Admissibility of Morgan’s Testimony Regarding Settlement
¶24. Unlike the matrix, Morgan’s in-court testimony about how he handled the settlement
was not hearsay since it was not an out-of-court statement. Although Morgan stated in his
deposition that he devised his matrix, in part, by referring to a similar matrix prepared by
another attorney, the mere existence of the document would not prevent Morgan from
testifying about how he personally determined the settlement values of each of his clients’
cases and the amounts of his previous settlements. Based on the arguments presented at trial
and here, Morgan’s deposition testimony was not inadmissible hearsay.
¶25. The question then is whether Morgan needed to be qualified as an expert to offer his
testimony. Under our rules, expert witnesses may offer opinion testimony where “scientific,
technical, or other specialized knowledge will assist the trier of fact to understand the
evidence or to determine a fact in issue . . . .” 15
¶26. Typically, an expert witness is an “outsider” to the case who evaluates the evidence
in an attempt to explain it to the jury. Before experts may deliver opinions to the jury,
experts must be vetted by the court and must satisfy certain criteria. By contrast, a fact
15
M.R.E. 702.
9
witness may be virtually any competent person 16 whose testimony is based on personal
knowledge.17 Morgan was not qualified as an expert witness, but his testimony was based
on personal knowledge. In other words, Morgan’s proffered testimony was a matter of fact
rather than opinion, and the trial court erred in excluding it.
¶27. The defendants argue (and the trial court found) that Morgan’s estimation of the value
of his clients’ claims was “speculative” opinion testimony that may only be offered by an
expert witness under M.R.E. 702. But the plaintiffs were not offering Morgan’s testimony
to establish his opinion of the value of their claims. Rather, it was being offered to show how
Morgan in fact distributed the settlement money to his clients. While those decisions may
have been based on Morgan’s opinions at the time, the decision-making process and the
resultant matrix was, and is, a matter of fact.
¶28. From the vantage point of trial, Morgan’s past settlement-negotiation process is a
matter of fact within Morgan’s personal knowledge and the rules provide no reason why he
should not be allowed to testify about it. Therefore, it was not hearsay nor was it necessary
to qualify Morgan as an expert before he could testify about the matter.
¶29. But even if Morgan’s testimony did constitute opinion rather than fact, our rules allow
lay opinion testimony of this nature. Under Rule 701, a lay witness may offer opinion
testimony that is “(a) rationally based on the perception of the witness, (b) helpful to the clear
understanding of the testimony or the determination of a fact in issue, and (c) not based on
scientific, technical, or other specialized knowledge within the scope of Rule 702.” Of these
16
M.R.E. 601.
17
M.R.E. 602.
10
three requirements, the first two are easily satisfied. Morgan’s settlement-negotiation process
is clearly based on Morgan’s perception and was helpful to the determination of a fact in
issue— indeed, the trial court essentially ruled that the plaintiffs had no case without it. The
question then turns on whether Morgan’s opinions were “based on scientific, technical, or
other specialized knowledge” usually reserved for experts.
¶30. On this point, the defendants actually make the strongest argument in favor of the
admissibility of Morgan’s testimony. They observe that “Morgan has admitted that he was
the person who exercised his discretion to decide how much of AHP’s block/lump sum
settlement monies would be allocated to a given client of his.” 18 And later:
At each point in [the process of creating his settlement matrix], Morgan came
up with his opinions on, e.g., how many injury classification levels there
should be, what should be the criteria for each level, which of his clients fell
into which level, and what did he think was the value or worth of a claim that
fell within a given level, and how much money he was going to allocate to a
given level and a client in that level.19
¶31. The defendants further emphasize that Morgan devised his matrix without consulting
any medical experts.
¶32. Obviously, an opinion as arbitrary as the defendants suggest would never satisfy the
strict requirements of expert witnesses under Rule 702 and our caselaw. And this is precisely
why Rule 701 applies. As long as the opinion is not based on the kind of technical expertise
required by Rule 702, a lay witness may offer opinion testimony if the other parts of the rule
are met, as they are here. Since Morgan’s discretionary disbursement of the settlement funds
18
Emphasis in original.
19
Emphasis in original.
11
to his clients did not implicate the kind of specialized knowledge implicated by Rule 702, to
the extent his testimony constitutes opinion, it was admissible under Rule 701. Therefore,
the trial court erred in excluding Morgan’s testimony regarding how he devised the
settlement matrix and how he disbursed the settlement funds to his clients.
CONCLUSION
¶33. The trial court erred in applying a negligence standard to the plaintiffs’ claims of
breach of fiduciary duty, and summary judgment is reversed and remanded as to the breach-
of-fiduciary-duty claims. The evidentiary ruling is reversed to the extent it excluded
Morgan’s in-court testimony regarding the settlement negotiation and payment process he
employed. The case is remanded to the trial court for further proceedings consistent with this
opinion.
¶34. REVERSED AND REMANDED.
WALLER, C.J., CARLSON, P.J., RANDOLPH, LAMAR, KITCHENS,
CHANDLER AND PIERCE, JJ., CONCUR. KING, J., NOT PARTICIPATING.
12