Quad City Bank & Trust, plaintiff-appellee/cross-appellant v. Elderkin & Pirnie, P.L.C., defendant-appellant/cross-appellee. , 870 N.W.2d 249 ( 2015 )

IN THE COURT OF APPEALS OF IOWA
No. 13-2025
Filed February 25, 2015
QUAD CITY BANK & TRUST,
Plaintiff-Appellee/Cross-Appellant,
vs.
ELDERKIN & PIRNIE, P.L.C.,
Defendant-Appellant/Cross-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Dubuque County, Thomas A.
Bitter, Judge.
A law firm appeals the judgment entered in a legal malpractice action and
the law firm’s former client cross-appeals the court’s denial of its request to
recover attorney fees. AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.
David L. Brown and Alexander E. Wonio of Hansen, McClintock & Riley,
Des Moines, for appellant/cross-appellee.
Daniel P. Kresowik of Stanley, Lande & Hunter, Davenport, and W. Scott
Porterfield, Roger Stetson, and Alison R. Leff of Barack, Ferrazzano, Kirschbaum
& Nagelberg, L.L.P., Chicago, Illinois, for appellee/cross-appellant.
Heard by Vaitheswaran, P.J., and Tabor and Mullins, JJ.
2
MULLINS, J.
The law firm of Elderkin & Pirnie (the law firm) appeals the judgment
entered in this legal malpractice action brought by the firm’s former client, Quad
City Bank & Trust (the bank). The law firm claims the evidence offered by the
bank was insufficient on a number of elements to sustain the bank’s burden of
proof. It also claims the court erred in granting the bank’s motion for additur.
The bank cross-appeals claiming the court erred in denying its requests to
recover the attorney fees it paid to the law firm for prosecuting the underlying
case. Because we find the evidence sufficient and the court’s amendment of the
jury verdict proper, we affirm the jury’s verdict in this case. However, because
we conclude attorney fees are a component of damage recoverable in legal
malpractice cases, we reverse the district court’s order precluding the
introduction of evidence supporting the element of damages and remand the
case to the district court for a new trial on the sole issue of the amount of
attorney fees the bank is entitled to recover from the law firm as a result of the
law firm’s negligence in the Kircher lawsuit.
I. Background Facts and Proceedings.
The law firm represented the bank in a lawsuit against an accounting firm,
Jim Kircher & Associates, P.C. The underlying lawsuit alleged the accounting
firm negligently audited the financial statements of one of the bank’s clients,
Chapman Lumber Company. The bank had chosen to refrain from foreclosing
the loans it had with Chapman Lumber based on the financial statements
prepared by Kircher. These accounting statements failed to uncover problems
3
with Chapman Lumber’s inventory and failed to disclose a secret bank account to
which Chapman Lumber was diverting cash.
The case against Kircher proceeded to trial, but Kircher successfully
moved to have the bank’s sole expert witness excluded from testifying because
the expert was not qualified to offer an opinion regarding the standard of care
applicable to Kircher. See Quad City Bank & Trust v. Jim Kircher & Assocs.,
P.C., 804 N.W.2d 83, 93–94 (Iowa 2011) (upholding the district court’s ruling
excluding the bank’s expert from testifying because he was not qualified to offer
an opinion as to the applicable standard of care). The case proceeded to the
jury, which returned a verdict in favor of Kircher, and that verdict was upheld on
appeal. Id.
The bank then brought this malpractice action against the law firm alleging
the firm negligently retained an expert witness who was not qualified to offer the
necessary opinions in the Kircher lawsuit and negligently failed to call this same
expert as a fact witness. The malpractice case1 proceeded to trial, and the jury
returned a verdict in favor of the bank. The court entered judgment against the
law firm after denying the law firm’s posttrial motions and granting the bank’s
motion for additur. From this judgment both parties appeal.
II. Scope and Standard of Review.
We review the district court’s ruling on a motion for judgment
notwithstanding the verdict for correction of errors at law. Faber v. Herman, 731
1
For this opinion, “malpractice” case, claim, lawsuit, or trial references the case brought
by the bank against the law firm, and “Kircher lawsuit” is the earlier accounting
malpractice case.
4
N.W.2d 1, 6 (Iowa 2007). We view the evidence in the light most favorable to the
judgment. Cameron v. Montgomery, 225 N.W.2d 154, 155 (Iowa 1975).
We review a district court’s ruling on a motion to amend a verdict for
abuse of discretion. Ostrem v. State Farm Mut. Auto. Ins. Co., 666 N.W.2d 544,
547 (Iowa 2003); see also Pexa v. Auto Owners Ins. Co., 686 N.W.2d 150, 162
(Iowa 2004).
Finally, the question of whether attorney fees are recoverable in a
professional negligence action is a legal question we review for correction of
errors at law. Sec. State Bank v. Ziegeldorf, 554 N.W.2d 884, 893 (Iowa 1996).
III. Sufficiency of the Evidence.
The law firm claims the bank’s evidence in support of its malpractice claim
falls short on a number of fronts. First, the law firm claims the evidence
produced by the bank at the malpractice trial was insufficient to prove the bank
could have collected a judgment against Kircher had the Kircher lawsuit been
successful. Secondly, the law firm claims the evidence was insufficient to prove
the amount of damages the bank would have been entitled to recover from
Kircher in the underlying lawsuit. Thirdly, the law firm asserts the evidence
offered in the malpractice case was insufficient to prove the Kircher audit was
actually inaccurate. Finally, the law firm claims there was insufficient evidence to
show the law firm’s breach of duty in not retaining a qualified expert proximately
caused the bank’s injury—in other words, the law firm claims that there is no
proof the bank would have won the Kircher lawsuit had a qualified expert been
retained and been allowed to testify.
5
In a legal malpractice lawsuit, a plaintiff must prove:
(1) the existence of an attorney-client relationship giving rise to a
duty, (2) the attorney, either by an act or failure to act, violated or
breached that duty, (3) the attorney’s breach of duty proximately
caused injury to the client, and (4) the client sustained actual injury,
loss, or damage.
Ruden v. Jenk, 543 N.W.2d 605, 610 (Iowa 1996). A legal malpractice action is
often called a “case within a case” because the plaintiff must prove he would
have been successful in the underlying lawsuit absent the lawyer’s negligence.
Baker v. Beal, 225 N.W.2d 106, 109 (Iowa 1975). All of the law firm’s challenges
on appeal are aimed at the lack of proof to show the bank would have been
successful in the Kircher lawsuit.
A. Collectability. First, the law firm claims the bank failed to offer
sufficient evidence from which the jury could conclude that any judgment entered
against Kircher in the underlying lawsuit would have been collectable. “[I]n
proving the value of the underlying claim the client has the burden to show not
just that a judgment in an ascertainable amount would have been entered, but
the amount that would have been collected on that judgment.” Whiteaker v.
State, 382 N.W.2d 112, 115 (Iowa 1986). The damages in a malpractice lawsuit
are limited to what the injured plaintiff could have actually collected in the
underlying lawsuit; otherwise, the plaintiff would be placed in a better position as
a result of the lawyer’s negligence. Id. The law firm claims that the malpractice
trial was completely devoid of any facts providing the jury with a reasonable basis
for determining any amount would have been collectable from Kircher.
6
The bank contends it offered ample evidence consisting of the law firm’s
own admissions that a judgment against Kircher would have been collectable.
Specifically, the bank introduced a spreadsheet prepared by the law firm for the
bank that outlined the various actions the bank could take to recover the money it
lost when Chapman Lumber filed bankruptcy. The spreadsheet listed the claim
against Kircher as having a “high” likelihood of collection. At the malpractice trial,
one of the lawyers from the law firm testified that she considered Kircher to be
liquid, and thus, the likelihood of collecting a judgment, if that judgment was
rendered, was high. In letters from the law firm to the bank during the pendency
of the Kircher lawsuit, the law firm asserted that action was the “holy grail” of
lawsuits because it could result in recovering the entire loss sustained by the
bank, and there was a “very high potential for substantial recoveries” against the
accounting firms.2 The lawsuits against the accounting firms were called the
“strongest possibility for a recovery that could make the bank . . . whole in this
matter.” The law firm also assessed that the “cost of continuing is definitely
outweighed by the likelihood of a recovery.”
The law firm maintains that statements its attorneys made in their role as
an advocate for the bank during the Kircher lawsuit should not be turned against
the law firm in this malpractice action to satisfy the bank’s burden of proof.
However, the statements the bank relies on from the law firm are not statements
the attorneys made as advocates for the bank, such as statements to the court,
2
A second lawsuit was brought against another accounting firm alleging the same
negligence as the lawsuit against Kircher. This second accounting lawsuit was settled
prior to trial.
7
the opposing party, or the fact finder pleading the bank’s case. These are
evaluative statements made by the lawyers to the firm’s own client, the bank, to
justify continued pursuit of the Kircher action. The law firm continually told the
bank that if a judgment was obtained against Kircher, the collection of that
judgment was highly likely and would likely make the bank whole. The law firm
cannot be heard to complain that the representations it made to its own client,
the bank, in the prosecution of the Kircher suit are being used by the bank to help
prove the bank’s case. We conclude the bank offered sufficient evidence of the
collectability of any potential judgment against Kircher, and thus, the law firm’s
challenge on this point is rejected.
B. Damages. Next, the law firm claims the bank failed to offer sufficient
evidence to prove the amount of money it would have recovered had the Kircher
lawsuit been successful. The law firm claims that conclusory testimony by a
bank employee and a lawyer in the firm that the damage amount submitted to the
jury in the Kircher lawsuit was $912,270 is not enough evidence. Instead, the
law firm contends the bank had to offer evidence to demonstrate how the bank
arrived at this number. The law firm asserts it was entitled to a directed verdict
because of the lack of evidence to show what the bank would have recovered
had the bank liquidated Chapman Lumber instead of deciding to forebear
foreclosing the loans based on the Kircher audit statements.
“When the alleged malpractice action rests upon the defendant lawyer’s
mishandling of a claim or lawsuit, proof of damages necessarily involves analysis
of the value of that underlying claim or cause of action.” Crookham v. Riley, 584
8
N.W.2d 258, 265-66 (Iowa 1998). A bank employee testified at the malpractice
trial that the amount of damages the law firm presented to the jury in the Kircher
lawsuit was $912,270 and that this number represented,
the difference between what [the bank] thinks [it] would have
received if an audit had been properly prepared showing all the
deficiencies, we would have shut the company down, liquidated,
taken the insurance money[3] paid off our loans versus what we
actually received by working with Chapman Lumber keeping their
doors open, getting them to a sale of the company in June of ’05
where we netted about a million 289, so the difference between
those two is the $912,270.
While the bank must present evidence to show they would have obtained a
superior result absent counsel’s negligence, “evidence may be sufficient if
damages cannot be calculated precisely but can be estimated.” Shannon v.
Hearity, 487 N.W.2d 690, 692 (Iowa Ct. App. 1992) (“The fact the evidence does
not say precisely what the plaintiffs lost does not necessarily exculpate the
defendant.”).
The attorneys representing the bank in the Kircher lawsuit acknowledged
it was their belief the bank did suffer damage as a result of Kircher’s actions,
which is why they recommended and pursued the lawsuit against Kircher.
There is a distinction between proof that a party has suffered
damages and proof regarding the amount of those damages. If the
record is uncertain and speculative whether a party has sustained
damages, the fact finder must deny recovery. But if the uncertainty
is only in the amount of damages, a fact finder may allow recovery
provided there is a reasonable basis in the evidence from which the
fact finder could infer or approximate the damages.
3
Chapman Lumber suffered a fire shortly after the bank decided to forebear foreclosing
on the loan. Based at least in part on the Kircher audit statements, the bank decided to
let Chapman Lumber use the insurance proceeds to rebuild instead of taking the
insurance proceeds to repay the outstanding loans and selling the remaining assets of
Chapman Lumber.
9
Crookham, 584 N.W.2d at 266. The evidence is sufficient in this case to prove
the bank suffered damages as a result of its reliance on Kircher’s audited
statements. Both the testimony from the employee of the bank and the lawyers
representing the bank in the Kircher lawsuit establish that fact. We also conclude
there was enough evidence based on the testimony of the bank employee for the
fact finder to approximate those damages by accepting the amount the bank
employee testified he calculated prior to pursuing the Kircher lawsuit.
C. Proximate Cause of Kircher. The law firm next challenges the proof
the bank submitted in support of the allegation Kircher’s negligence in the
preparation of the audit statements was the proximate cause of damage to the
bank. The law firm contends the bank offered no evidence at the malpractice
trial that supports the assertion the audit reports were inaccurate—proof Kircher
was negligent in the audit is not enough according to the law firm. While the law
firm concedes there was proof Chapman Lumber was inflating its inventory
numbers and diverting cash in 2005 when the bankruptcy proceeding was
occurring, the law firm contends there was no evidence these practices were
going on when Kircher was conducting its audit in late 2003, and thus, no
evidence the resulting audit statements were inaccurate. It is the law firm’s
contention that without proof the audit statements were inaccurate, the bank
cannot prove its reliance on those statements caused the bank to lose money.
The bank asserts its accounting expert in the malpractice action testified
Kircher was negligent when it failed to conduct the required testing and
independent verification of the inventory and cash accounts. The expert claimed
10
the audit did not conform to the applicable auditing and accounting standards. In
addition, the bank offered the testimony of the lawyers representing the bank in
the Kircher lawsuit. The bank contends this testimony supplies the evidence
necessary to sustain its burden. One of the attorneys representing the bank in
the Kircher lawsuit testified that based on her investigation Kircher acted
negligently and that negligence included failing to detect over-reporting of
inventory in the 2003 financial statements. In a litigation memo prepared by the
law firm, the attorneys in the firm asserted that “the financial statements
misrepresented the assets and inventory of Chapman Lumber.”
In addition, the bank called its expert, John Woods, at the malpractice trial.
Woods testified:
From reviewing the record, it was clear to me that Chapman
Lumber made a practice, historically, of including whatever lumber
came into its premises in its accounting records, in its inventory
listings as its own assets regardless of whether it had purchased or
whether it belonged to someone else, which in and of itself as a
practice is—is not consistent with the requirements of generally
accepted accounting principles. . . .
....
. . . [A]pparently it was common practice and had been
historically for some of the money to be taken by the owner and put
in an account somewhere else, and the bookkeeper knew about
that practice. It wasn’t a secret. And in reviewing the accounting
firm’s engagement file, I came to the conclusion that they failed to
again dig deeply enough into what was going on to learn that, in
fact, some of the money was going into some other account and, in
fact, once you looked a little bit, you would see that that account
was nowhere on the books and that’s a big problem.
Woods was unable to testify as to precisely when the over-reporting of
inventory and the diverting of cash had started, but he testified that based on his
review of the record, “this had been a practice of Chapman Lumber and an
11
element of its business for some period of time.” The law firm faults this
evidence as insufficient because Woods was unable to testify as to precisely
when the misconduct of Chapman Lumber began. However, this challenge is
aimed at the weight the jury should give to Woods’s opinions, not the sufficiency
of the evidence. See generally Jones v. Otis Elevator Co., 861 F.2d 655, 663
(11th Cir. 1988) (“[T]he jury could evaluate the weight to be given the testimony.
We find as long as a logical basis exists for an expert’s opinion and the
inadequacies are fully disclosed to the jury, the weaknesses in the underpinnings
of the opinion, go to the weight and not the admissibility of the testimony.”). We
conclude the evidence of the proximate cause in the underlying Kircher lawsuit is
sufficient based on the testimony of the law firm’s own attorneys, who stated their
investigation concluded the financial statements prepared by Kircher were
inaccurate, and Woods’s testimony that based on his review of the record the
inventory and cash practices of Chapman Lumber had been going on
“historically.”
D. Qualified Expert. In the law firm’s final challenge to the sufficiency of
the evidence, law firm claims the bank has failed to offer evidence to prove that
had an accounting expert testified at the Kircher trial, the result of the trial would
have been different.
The bank’s legal expert, Mark McCormick, testified at the malpractice
action that an accounting expert opinion on the issue of the applicable standard
of care for an auditor was “essential” to the Kircher lawsuit. McCormick
explained based on his review of the Kircher lawsuit that after the exclusion of
12
the bank’s auditing expert, “no witness testified that the Kircher firm was
negligent.” In addition, the law firm’s attorneys repeatedly reported to the bank
during the pendency of the Kircher lawsuit that expert opinion was necessary and
essential to maintaining the action against the accounting firms. The law firm
stated that retaining the expert was required “or our suit would have been
dismissed.” Later, the law firm asserted the expert expense was critical to the
case “since it is not possible to maintain [the accounting] malpractice case
without the opinion of an expert.” The law firm also informed the bank prior to the
Kircher trial that the case would come down to a “battle of the experts” and
depend on “which of the experts the jury believes.”
With the exclusion of the bank’s only accounting expert, the jury in the
Kircher case could not weigh one side’s expert opinion against the other to see
which opinion won the battle; it only heard from one side. The jury had no expert
to inform them Kircher performed negligently but had three experts who testified
on Kircher’s behalf that there was no negligence in the performance of the audit.
Despite this clear evidence that the lack of an expert witness affected the
outcome of the Kircher trial, the law firm in this appeal claims the bank needed to
offer evidence that a qualified expert would have resulted in a verdict in favor of
the bank. The law firm claims that the malpractice jury needed expert testimony
to support the assertion that the missing expert testimony on the auditing
standard of care would have made a difference to the Kircher jury.
The bank asserts such expert testimony—testifying as to how the Kircher
jury would have ruled had a properly qualified expert testified—is not only
13
unnecessary but improper. The malpractice jury is permitted to substitute its
judgment for the judgment of the Kircher jury when deciding if such testimony
would have made a difference. The bank contends offering expert testimony on
this issue would “invade the jury’s function,” and we agree. The very purpose of
requiring the bank to prove the elements of the accounting negligence claim
against Kircher in its legal malpractice lawsuit against the law firm is for the
malpractice jury to be able to decide whether the bank would have won the
Kircher lawsuit if the missing expert testimony had been offered. See First Union
Nat’l Bank v. Benham, 423 F.3d 855, 865 (8th Cir. 2005) (“[A]lthough the issue at
hand in the malpractice case is a determination of the outcome of the underlying
. . . case, the jury in the malpractice case is permitted to decide this by
substituting its judgment for the judgment of the factfinder, be it jury or judge, in
the earlier case.”); Hickey v. Scott, 796 F. Supp. 2d 1, 5 (D.D.C. 2011) (“Hence,
in attorney malpractice cases where causation requires proof of what would have
happened in the underlying case within the case, courts simply instruct the jury
on the legal aspects of the case, and then leave it to the jury to decide, based on
the law, what a reasonable fact-finder would have concluded if the attorney had
not been negligent. . . . The only remaining question then is whether the jury
should be assisted by expert testimony in making this determination. Most courts
to address the issue have suggested that any affidavit or testimony from an
expert arbitrator or judge as to what should have happened in the proceeding
that is the subject of subsequent malpractice litigation is likely more prejudicial
than probative, because the affidavit or testimony would tend improperly to
14
displace the fact-finder in the malpractice case within a case.” (citations
omitted)).
We therefore find sufficient evidence to support submitting this malpractice
case against the law firm to the jury.
IV. Additur.
During jury deliberations, the court was informed the jury had reached a
verdict. In reviewing the verdict, the court noted the jury had left blank question
7, which asked the jury to state the total damages the bank suffered as a result of
the negligence of the law firm. Instead, the jury wrote on the verdict form:
Bank=35%
E&P=65%
The court discussed the verdict with the jury foreperson, who informed the court
this answer was left blank because the instructions said the court would reduce
the total damages by the percentage of the bank’s fault. The court sent a written
instruction back to the jury telling them to complete question 7. The jury then
asked for a calculator. On the note containing the court’s most recent instruction
the jury wrote,
912,207 x .35 = 319,294.5
592,975.50
On the blank in question 7 of the verdict form the jury wrote the figure
$592,975.50. The court held a conference with the attorneys and informed them
of the verdict and that it was clear the jury had apportioned fault between the
bank and the law firm though the instructions did not permit such an
15
apportionment.4 The court initially accepted the $592,975.50 verdict and
reduced that amount by the 25% fault the jury had assigned to the bank from the
underlying Kircher lawsuit, entering a judgment in favor of the bank in the amount
of $444,731.62.
The bank filed a posttrial motion for additur or to reform the jury verdict. In
its written ruling, the court noted that the damages presented by the bank at trial
were not specifically delineated so the jury had no way of parsing through the
particular damage items. The court concluded there was no basis in fact for an
award of damages in the amount of $592,975.50. It was clear to the court that
the jury had found the total amount of damages to be $912,270 and then the jury
improperly reduced that figure by 35% based on its finding of fault on the bank in
the malpractice action. Because the court had previously ruled the bank could
not be contributorily at fault with respect to the malpractice action, the court
reformed the verdict against the law firm to $684,202.50, which represents
$912,270 reduced by 25%—the bank’s contributory fault arising from the Kircher
lawsuit.
The law firm asserts it was improper for the court to modify the jury verdict
as there was no indication the jury made either a technical or ministerial mistake
or error when answering question 7. It also claims it was improper for the court
to engage in speculation or conjecture regarding the jury’s reasoning for
awarding the amount it did.
4
The instructions did permit the jury to apportion fault between the bank and Kircher for
the underlying lawsuit. The jury responded to that verdict question assigning 25% of the
fault to the bank and 75% to Kircher.
16
“If uncontroverted facts show the amount of the verdict bears no
reasonable relationship to the loss suffered, the verdict is inadequate.” Pexa,
686 N.W.2d at 162. “In such a case, refusal by the district court to grant either
an additur or a new trial is an abuse of discretion. In cases involving undisputed
or liquidated damages or damages reasonably susceptible to precise calculation,
additur is appropriate.” Kerndt v. Rolling Hills Nat’l Bank, 558 N.W.2d 410, 417
(Iowa 1997).
The only damage figure the jury was given in this case was $912,270. As
the district court concluded, there was no basis in fact for an award totaling
$592,975.50. It was clear based on the various writings of the jury that they
attempted to assign 35% fault to the bank in the malpractice action. This
assignment of fault was not proper under the instructions as the court had
concluded the bank could not be found contributorily at fault for the lawyers’
malpractice. The only fault the bank could be assigned arose out of the
underlying case between the bank and Kircher in the bank’s dealings with
Chapman Lumber. The jury considered that contributory fault and assessed a
25% reduction on the value of the underlying claim against the bank. We find no
abuse of discretion in the court’s decision to amend the jury verdict in the case to
bring it into compliance with the facts and the instructions.
V. Attorney Fees.
In its cross-appeal, the bank claims the court should have allowed it to
offer evidence of the attorney fees the bank paid to the law firm for prosecuting
the Kircher lawsuit. The district court refused to permit the evidence, concluding
17
the case law applicable to professional negligence cases did not permit the
recovery of attorney fees from the underlying case.
“Generally, attorney fees are recoverable only by statute or under a
contract.” Miller v. Rohling, 720 N.W.2d 562, 573 (Iowa 2006).5 There is also a
rare exception to this rule that permits the recovery of attorney fees when the
defendant “has acted in bad faith, vexatiously, wantonly, or for oppressive
reasons.” Id. The bank does not claim that a statute, a contract, or the law firm’s
behavior justifies an award of attorney fees here. Instead, the bank asserts that
the goal of a legal malpractice action—to put clients in the position they would
have occupied had the attorney not been negligent—would be defeated if the
bank was not permitted to recover the attorney fees it paid to the law firm for the
Kircher lawsuit. In support of its claim, the bank cites to the case of Hook v.
Trevino, 839 N.W.2d 434, 446–48 (Iowa 2013).
In Hook, the defendant lawyer sought to reduce the damage award
entered against him in the malpractice action by the contingency fee he would
have charged the plaintiff had he been successful in the underlying action. 839
N.W.2d at 446. The supreme court rejected the lawyer’s request, adopting the
majority view, that to allow that setoff would result in the plaintiff not being made
whole. Id. at 448. A plaintiff injured by legal malpractice has to retain two
lawyers to obtain the recovery he is entitled to—the first negligent lawyer and a
second lawyer to bring the malpractice action. Id. at 446. If the court would
allow the negligent lawyer to set off the damages by the contingency fee, the
5
Iowa follows the American Rule: “the losing litigant does not normally pay the victor’s
attorney’s fees.” Rowedder v. Anderson, 814 N.W.2d 585, 598 (Iowa 2012).
18
negligent lawyer would get the benefit of a fee not earned, and the plaintiff would
be put in a worse position because the plaintiff is also obligated to pay the fees of
the attorney that prosecuted the malpractice claim. Id. “We will not turn a blind
eye to the reality that the victim of legal malpractice must retain a second lawyer
to recover from the first. The legal fees are a wash.” Id. at 448. Our supreme
court did leave open “the possibility for a quantum meruit setoff from a legal
malpractice recovery on an appropriate record,” but it rejected such a setoff in
Hook because the negligent attorney’s actions did not benefit the client. Id. at
449. The injured client used different experts to prove the underlying case, had
to retain additional experts on legal malpractice (this cost could have been
avoided entirely had the underlying tort action been prosecuted successfully),
and the recovery was delayed by years due to the attorney’s negligence. Id.
While the Hook case dealt with a setoff for a contingency fee that had not
yet been paid by the injured plaintiff, the bank asks that we extend the Hook
reasoning to this case and hold that the bank is entitled to recover from the law
firm the fees the bank paid for the law firm’s representation in the Kircher lawsuit.
The law firm contends attorney fees are not recoverable in this
malpractice action. It attempts to draw a distinction in the damages recoverable
between a malpractice action where the negligent lawyer prosecuted a claim for
a client versus a malpractice action where the negligent lawyer defended the
client. The law firm claims attorney fees are recoverable in malpractice actions
where the underlying case involved defending a client but not recoverable where
the underlying case involved prosecuting a claim for a client. In support of this
19
proposition the law firm cites Pickens, Barnes & Abernathy v. Heasley, 328
N.W.2d 524, 526 (Iowa 1983).
We conclude Pickens does not support such a distinction. In Pickens, the
negligent attorney both prosecuted a lawsuit for the client and defended the client
from a counterclaim in the same lawsuit. 328 N.W.2d at 525. The case resulted
in the client recovering nothing on the claim and paying $6000 on the
counterclaim. Id. The attorney then sued the client for fees that had not been
paid, and the client counterclaimed alleging the attorney committed malpractice.
Id. The court used the distinction between prosecuting and defending a claim for
a client to describe the differences between the damages recoverable by a client
in a malpractice action. Id. at 526. The court made the distinction to
demonstrate an injured client alleging an attorney negligently prosecuted a claim
had to prove the underlying claim would have been collectable. Id. No such
collectability proof is necessary when the negligent attorney was defending the
client in the underlying case. Id. The client’s malpractice action lacked proof of
collectability on the claim prosecuted by the negligent attorney, but that only
precluded the client from recovering that portion of the claim. Id. The court held
the client could still recover for the lawyer’s negligence in defending the
counterclaim, and those damages included the amount the client had to pay
($6000) plus costs and attorney fees. Id. While the court listed attorney fees as
a recoverable item of damages for the client, who was prevented by the lack of
proof of collectability from recovering on the claim the attorney negligently
20
prosecuted a claim, it did not specifically restrict the recovery of attorney fees to
only malpractice claims involving defending a client.
While our courts have not affirmatively held that attorney fees from the
underlying case are recoverable in a malpractice action, the Hook case indicates
our supreme court would be open to awarding attorney fees in legal malpractice
actions. The goal of malpractice actions is to put the plaintiff back into the
position it would have been had the lawyer not been negligent. The supreme
court in Hook stated it would “not turn a blind eye to the reality that the victim of
legal malpractice must retain a second lawyer to recover from the first.” 839
N.W.2d at 448. Obviously paying two attorneys, the negligent attorney and the
malpractice attorney, to recover one claim is not putting the injured party back in
the same position. We see no reason why the logic of Hook, that a negligent
attorney is not entitled to a setoff for a contingency fee, cannot be applied to a
case where the injured client paid the negligent attorney an hourly fee for the
underlying case. See John Kohl & Co., P.C. v. Dearborn & Ewing, No. 01A01-
9609-CV-00421, 1997 WL 195469, at *6 (Tenn. Ct. App. Apr. 23, 1997) (applying
the logic of a prior case where a contingency fee setoff was not allowed to permit
the plaintiff in the present case to recover the fees paid to their negligent attorney
“with the exception that [the negligent attorneys] receive ‘credit for expenses
which were incurred on behalf of [Plaintiffs] which ultimately benefitted
[Plaintiffs]’”), aff’d and remanded, 977 S.W.2d 528 (Tenn. 1998). To deny such a
recovery would not put the injured bank back into the same position it would have
occupied had the law firm not been negligent.
21
We conclude the court erred in refusing to permit the bank to offer
evidence as to the amount of attorney fees the bank paid the law firm to
prosecute the Kircher lawsuit. The bank asserts we can enter an award of
attorney fees based on the amount of fees they assert they were due in their
offer of proof to the district court. The bank paid a total of approximately
$1,007,000 to the law firm for all the work the law firm did for the bank in
connection with the Chapman Lumber case including the action against Kircher.
The bank asked the law firm to separate out those fees only associated with the
case against Kircher, and the law firm refused to provide this breakout. The bank
decided to estimate the fees at one-third of the total fees paid, and the law firm
did not challenge this amount. The bank thereby asserts we should enter an
award based on the “uncontroverted” evidence.
We decline the invitation to enter such an award in this case because the
attorney fees to be awarded in this case are actually an element of damages in
the malpractice action arising from the law firm’s negligence. This element of
damages should have been submitted to a fact finder to determine what amount
was proximately caused by the lawyer’s negligence. See Akin, Gump, Strauss,
Hauer & Feld, L.L.P. v. Nat’l Dev. & Research Corp., 299 S.W.3d 106, 122 (Tex.
2009) (“The better rule, and the rule we adopt, is that a malpractice plaintiff may
recover damages for attorney’s fees paid in the underlying case to the extent the
fees were proximately caused by the defendant attorney’s negligence.”). This is
not an award of attorney fees awarded to a prevailing party based on a contract
or statute where such award is usually left to the discretion of the district court to
22
award what is fair and reasonable. See Ayala v. Center Line, Inc., 415 N.W.2d
603, 606 (Iowa 1987) (concluding in a civil rights case the judge, not the jury, is
to determine the award of attorney fees to be paid to the prevailing plaintiff under
the applicable statute). Because the district court withheld an element of
damages from the jury, a remand for a new trial before a fact finder is necessary.
See Miranda v. Said, 836 N.W.2d 8, 35 (Iowa 2013) (remanding a legal
malpractice case for a new trial on damages where the district court erred in not
submitting emotional distress and punitive damage claims to the jury).
We therefore reverse the district court’s ruling withholding from the jury the
evidence of the attorney fees the bank paid to the law firm in the Kircher lawsuit
and remand the case for a new trial. The only issue to be submitted to a fact
finder at the new trial is the amount of attorney fees the bank is entitled to
recover from the law firm for the work the law firm did in the Kircher lawsuit that
proximately caused the bank injury. See Fisher v. Davis, 601 N.W.2d 54, 61
(Iowa 1999) (remanding a case for a new trial on one element of damages alone
where the other claims rejected by the original jury were separate and distinct);
see also McCarville v. Ream, 72 N.W.2d 476, 481 (Iowa 1955) (noting the
appellate court can properly limit a new trial to only those issues affected by the
lower court’s error). The attorney fees the bank can recover from the law firm
include only those fees charged by the law firm that did not benefit the bank.
See Hook, 839 N.W.2d at 449 (noting the work the negligent attorney did for the
client did not benefit the client and the new attorney had to use different experts
to prove the underlying case).
23
VI. Conclusion.
In conclusion, we reject the law firm’s appeal because we find the
evidence sufficient to prove all the necessary elements of the legal malpractice
case and we find the court’s amendment of the jury verdict was proper.
However, on the cross-appeal we conclude attorney fees are a component of
damages recoverable in a legal malpractice case, and we reverse the district
court’s order precluding the introduction of evidence supporting that element of
damages. We remand the case to the district court for a new trial on the sole
issue of the amount of attorney fees the bank is entitled to recover from the law
firm as a result of the law firm’s negligence in the Kircher lawsuit.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.