Steven J. Faber Vs. Douglas D. Herman ( 2007 )

IN THE SUPREME COURT OF IOWA
No. 143 / 05-1040
Filed April 6, 2007
STEVEN J. FABER,
Appellee,
vs.
DOUGLAS D. HERMAN,
Appellant.
________________________________________________________________________
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Jones County, L. Vern
Robinson, Judge.
Further review from a decision by the court of appeals affirming a
judgment for damages in a legal malpractice action. DECISION OF
COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT
REVERSED.
Patrick M. Roby and Robert M. Hogg of Elderkin & Pirnie, P.L.C.,
Cedar Rapids, for appellant.
Max E. Kirk of Ball, Kirk & Holm, P.C., Waterloo, for appellee.
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CADY, Justice.
In this appeal from a judgment against a lawyer in a legal
malpractice action based on claims of negligence while representing a
former client in a dissolution proceeding, we conclude the claims of
malpractice did not cause the damages sought as a matter of law. We
vacate the decision of the court of appeals and reverse the judgment of
the district court.
I. Background Facts and Proceedings.
Douglas Herman is an Iowa lawyer. He represented Steven Faber
in an action to dissolve his marriage to Karen Faber. Karen was
represented by attorney Karl Moorman.
The Fabers were married for nineteen years at the time the
dissolution action was commenced. The divorce presented many
challenging issues, not the least of which was the equitable division of
their marital property. The parties and their attorneys worked to resolve
these issues, which ultimately resulted in a stipulated decree for
dissolution of marriage.
One item of property divided under the stipulation and decree
was Steven’s retirement account with the Iowa Public Employer’s
Retirement System (IPERS). Steven began working for the State of Iowa
two years after the marriage. He worked at the Anamosa state
penitentiary as a corrections officer, and continued to be employed in
that capacity until after the divorce.
Based on information provided by IPERS during the pendency of
the divorce, Steven learned the “investment value” of his retirement
account was $38,179.38, and the “death benefit” was $63,785.94. The
“death benefit” represented the amount to be distributed to Karen, as the
designated beneficiary, in the event of Steven’s death. The “investment
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value” represented the amount Steven would receive in a lump sum
payment if he retired from his employment with the State of Iowa on the
day the value was determined. Steven was vested in the pension plan,
and therefore the “investment value” represented all of his personal
contributions during the course of his employment plus a portion from
his employer.
Steven and Karen agreed to divide the IPERS account equally. To
accomplish this division, they considered the “investment value” to be
the value of the account, and they sought to divide the account by means
of a qualified domestic relations order (QDRO) that required IPERS to
immediately pay Karen one-half of the investment value, or $19,100.
Specifically, the stipulation required Steven to “immediately pay
$19,100.00 to [Karen] from his I.P.E.R.S. retirement account pursuant to
a separate Qualified Domestic Relations Order issued by the Court.”
Steven and Karen also prepared an itemization of the division of
all their property by listing each item of property received by each party
in separate columns, with a corresponding value assigned to each item.
This itemization was attached to the written stipulation signed by the
parties. Steven’s column included “IPERS (one-half)” with a value of
“$19100.” Likewise, Karen’s column included “IPERS (one-half)” with a
value of “$19100.” The stipulation was signed by Steven and Karen in
May 1999, and the decree was entered by the court.
Moorman then drafted a proposed QDRO to divide the IPERS
account pursuant to the stipulation. This proposed order essentially
directed IPERS to create a separate interest for Karen in the amount of
$19,100, payable to her as a participant under the plan. Moorman then
sent the order to the administrator of IPERS for approval. IPERS rejected
the proposed QDRO because it allowed Karen to acquire independent
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rights in the account. IPERS informed Moorman that Karen could not
receive any benefits until Steven began to receive benefits or died. IPERS
also informed Moorman that Karen had no right to independently select
a distribution option and begin receiving benefits, or to have a separate
account set aside in her name.
Moorman then drafted a new QDRO that abandoned the lump-
sum division approach agreed to by the parties under their stipulation.
The new QDRO provided for the benefits to be distributed to Steven and
Karen upon Steven’s retirement under a formula based on the length of
the marriage and the length of employment. The QDRO provided:
IPERS is directed to pay benefits to [Karen] as a marital
property settlement under the following formula: Fifty
percent (50%) of the gross monthly or lump sum benefit
payable at the date of distribution to [Steven] multiplied by
the “service factor.” The numerator of the service factor is 70
and the denominator is [Steven’s] total quarters of service
covered by IPERS.
Under the QDRO the benefits were to inure to Karen as an alternate
payee for Steven’s life, and were not to begin until “[Steven] begins to
receive benefits from IPERS or when the death benefits become payable
. . . whichever occurs first.” IPERS approved this QDRO, and it was
signed by Herman, Moorman, and the court in July of 1999.
Herman did not directly participate in drafting the QDRO, but he
did approve it. Herman acknowledged his approval in a letter to Steven
in September of 1999. The letter informed Steven the QDRO had been
finalized, and it divided his IPERS account “consistent with the
stipulation.” Herman did not tell Steven that IPERS rejected the lump-
sum payment approach agreed to under the stipulation, and he did not
explain the percentage method of distribution ultimately used to divide
the pension. Consequently, Steven understood at the conclusion of his
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divorce that his IPERS account had been divided pursuant to the
stipulation.
In 2000, the Iowa legislature amended the law governing IPERS
to permit in-service disability benefits. 2000 Iowa Acts ch. 1077, § 51
(codified at Iowa Code § 97B.50A (2001)). Steven subsequently applied to
IPERS for disability retirement as a result of exposure to mace and
second-hand smoke while working at the prison. IPERS approved his
application in January 2001, and eventually informed him that due to
the QDRO on file he would receive monthly benefits of $1,209.77, and
Karen, as the alternate payee, would receive $962.31 each month.
Steven was surprised to learn Karen would receive a portion of
the monthly benefits, and he wrote a letter to Herman expressing his
displeasure with the distributions from IPERS. As a result, Herman tried
several times to modify the QDRO to provide Steven with a more
favorable result. Ultimately, Herman’s efforts were unsuccessful and the
distributions under the QDRO remained the same.
Steven then brought a legal malpractice action against Herman.
He claimed Herman was negligent in preparing and drafting the
stipulation and QDRO, and in advising him in the division of the
pension. He sought damages based on the amount of benefits Karen
would receive in excess of the amount she was entitled to recover under
the stipulation.
The case proceeded to trial. The jury found Herman seventy
percent negligent and Faber thirty percent negligent. It also found past
damages of $20,984.47, and future damages of $88,349.93.
Both parties subsequently filed motions for judgment
notwithstanding the verdict. Steven argued the record did not support
the jury’s finding that he was thirty percent negligent. Herman argued
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the verdict against him was contrary to law and not supported by the
evidence. In addition, Herman alleged the measure of damages
submitted to the jury was improper, certain evidence should not have
been deemed inadmissible hearsay, and the court erred in submitting
several jury instructions. The district court denied both parties’ motions,
and both parties appealed.
Herman raised four claims of error on appeal. First, he alleged
the district court erred in failing to direct a verdict because there was
insufficient evidence that any negligence on his part actually or
proximately caused Steven any damage. Second, Herman claimed there
was insufficient evidence to support the four specifications of negligence
submitted to the jury. Third, Herman claimed the damage instruction
submitted to the jury was based on an improper measure of damages.
Finally, Herman claimed the damages awarded were speculative,
excessive, and not reasonably foreseeable. On cross-appeal, Steven
claimed the district court erred in instructing the jury to consider his
fault.
We transferred the case to the court of appeals. The court of
appeals rejected each claim raised by Herman, and reversed the jury’s
assessment of fault against Steven. We granted further review sought by
Herman.
II. Issues.
“On further review, we can review any or all of the issues raised
on appeal or limit our review to just those issues brought to our
attention by the application for further review.” Anderson v. State, 692
N.W.2d 360, 363 (Iowa 2005). In his original appeal, Herman argued the
district court should have granted his motions for directed verdict and
judgment notwithstanding the verdict because Steven failed to prove
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causation. Specifically, Herman alleged there was insufficient evidence
to show Karen would have agreed to any result other than what the
QDRO provided. On further review, Herman argues Steven cannot show
causation because of our holding in In re Marriage of Sullins, 715 N.W.2d
242 (Iowa 2006). Specifically, Herman claims Karen would not have been
able to receive a lump sum payment of $19,100 under our holding in
Sullins because this figure was not derived from actuarial methods.
Causation is the issue we choose to address on further review.
III. Standard of Review.
We are required to determine the propriety of our court of
appeals’ decision regarding Herman’s motion for judgment
notwithstanding the verdict. Rulings on motions for judgment
notwithstanding the verdict are reviewed for the correction of errors at
law. Iowa R. App. P. 6.4; Estate of Long ex rel. Smith v. Broadlawns Med.
Ctr., 656 N.W.2d 71, 79 (Iowa 2002) (“We review the district court’s
decisions on the motion [for judgment notwithstanding the verdict] for
errors at law.”).
IV. Causation.
Herman argues the grounds of negligence alleged by Steven could
not have caused the damages sought because Steven and Karen
intended to divide the pension equally at the time of the divorce, which is
exactly what the parties ultimately received. Thus, Herman claims any
claim of negligence supported by the evidence was not a cause of the
damages sought by Steven.
Causation is an essential element in a cause of action based on
negligence. See Crookham v. Riley, 584 N.W.2d 258, 265 (Iowa 1998)
(noting causation must be proved in a legal malpractice action “the same
as any other negligence action”). It is composed of two components. The
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first is a “but-for” or “cause in fact” component. Yates v. Iowa W. Racing
Ass’n, 721 N.W.2d 762, 774 (Iowa 2006). The second is a “legal cause”
or “proximate cause” component. Id. A defendant’s conduct is not a
cause in fact “ ‘[i]f the plaintiff would have suffered the same harm had
the defendant not acted negligently.’ ” Berte v. Bode, 692 N.W.2d 368,
372 (Iowa 2005) (citation omitted). The defendant’s conduct is not a legal
cause “ ‘if the harm that resulted from the defendant’s negligence is so
clearly outside the risks he assumed that it would be unjust or at least
impractical to impose liability.’ ” Id. (citation omitted). The question of
causation is normally for the jury to decide, but there are circumstances
when the issue can be decided as a matter of law. See Ruden v. Jenk,
543 N.W.2d 605, 611–12 (Iowa 1996) (holding, as a matter of law,
defendant failed to show proximate cause).
Causation in a negligence action must be analyzed in the context
of the relationship between those theories of negligence supported by the
evidence and the theory of damages sought by the plaintiff. Actual
causation, as well as legal causation, must exist between the breach of
the duty of care and the damages sought. The theory of damages alleged
by Steven was based on the amount of benefits Karen would ultimately
receive under the QDRO in excess of the $19,100 Karen was to receive
under the stipulation. Steven claims this amount represents his
compensatory damages because the excess benefits received by Karen
should have been received by him.
The jury was instructed on four claims of negligence. They
included:
1. Drafting a stipulation (to provide for an immediate
payment to Karen of $19,100) contrary to the terms of the
IPERS plan.
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2. Failing to prepare a QDRO to provide Karen with a
specific dollar amount.
3. Failing to advise Steven that he could have divided the
pension with non-pension assets worth $19,100.
4. Failing to advise Steven that the QDRO approved by
IPERS and entered by the court divided the pension by a
different method than agreed under the stipulation.
In analyzing each claim of negligence, we begin with the
fundamental principle that pensions can be divided in one of two basic
ways. See In re Branstetter, 508 N.W.2d 638, 642 (Iowa 1993) (“There are
generally two ways for a court to divide pension benefits.”). Parties can
agree the non-member will receive a share based on the present worth of
the pension, or receive a share of the pension benefits at some point in
the future when they become payable to the pensioner. Id. Thus, the
difference between the two methods involves the payment of an
immediate amount or the payment of an amount in the future. We have
previously identified this difference by using the terms “present value
method” and “percentage method.” Sullins, 715 N.W.2d at 248.
The division of a defined-benefit pension plan, such as IPERS,
under the present value method requires the use of actuarial science. Id.(citing In re Benson, 545 N.W.2d 252, 255 (Iowa 1996)). For this reason,
we have said “it is normally desirable to divide a defined-benefit plan by
using the percentage method.” Id.; see Benson, 545 N.W.2d at 255(recognizing the disadvantages of an “immediate distribution”).
Additionally, it is usually too difficult “for a pensioner to pay a lump sum
amount representing the present value of a defined pension plan.”
Sullins, 715 N.W.2d at 248–49. It is difficult because the lump sum
amount is normally paid through an award of non-pension benefits. Id.In this case, Steven’s IPERS account was ultimately divided using the
“normally desirable” percentage method. Id. at 248.
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The future division of IPERS benefits does not usually require
actuarial science, but it does require a QDRO. A QDRO is necessary
because a future division divides the member’s benefits. Without a
QDRO, the member’s benefits would be distributed to the member
according to the terms of the pension plan. The QDRO directs the
distribution of future benefits to the former spouse as an alternate payee.
Generally, a QDRO can divide an IPERS account between a
member and a nonmember spouse in a divorce in three basic ways: A
“straight percentage method,” a “service factor percentage method,” and
a “dollar amount method.” See Instructions for Using Iowa Public
Employees’ Retirement System (IPERS) Model QDRO, available at
http://www.ipers.org/docs/qdro/ipersqdromodel.doc (last visited March
27, 2007) [hereinafter Model QDRO]; see also Iowa Code § 97B.39
(requiring, inter alia, that “[t]he system shall comply with the provisions
of a marital property order requiring the selection of a particular benefit
option, designated beneficiary, or contingent annuitant if the selection is
otherwise authorized by this chapter”); Iowa Admin. Code r. 495–16.2
(2004) (allowing fixed dollar amount or percentage methods under a
QDRO). A straight percentage method divides the member’s lump sum
or gross monthly benefit according to a percentage determined by the
parties. See Model QDRO. A service factor percentage method divides
the pension according to a percentage multiplied by a factor based on the
member’s service during the marriage and the member’s total service.
See id. Finally, a dollar amount method divides the member’s lump sum
or gross monthly benefits based on a specific dollar amount awarded to
the alternate payee.1 See id. Thus, an IPERS account can be divided in
1
Notably, this last method of future division incorporates concepts unique to
what we have termed a “present value division” and a “percentage division.” See
Sullins, 715 N.W.2d at 248. The dollar amount method of division under a QDRO is
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a divorce by one of these three basic methods, or by means of non-
pension assets based on the present value of the pension at the time of
the divorce.
Our analysis in this case turns on the realization that a one-half
division under each method of division produces the same basic result.
In other words, if the parties agree to divide a pension equally, an equal
division will occur regardless of the method of division selected so long as
the methods are properly applied. Of course, an equal division under
some of the methods would involve an extremely complex analysis and
would be difficult to achieve. See Benson, 545 N.W.2d at 255. This
difficulty underscores our previous observation that the service factor
percentage approach is the preferred method, even though no method of
division can be precise in carrying out the parties’ agreement. It is in
this light that we consider whether the claims of negligence caused the
damages Steven alleges.
The first claim of negligence is that Herman drafted a stipulation
(providing for an immediate payment of $19,100 from the IPERS account
by means of a QDRO) that could not be carried out pursuant to a QDRO
because it was contrary to the IPERS regulations. While Herman was
clearly negligent in drafting a stipulation to provide for a division of the
pension by a means not permitted by law, it is equally clear that this
________________________
similar to the present value method because both methods attempt to state the
alternate payee’s share in current dollars. This, of course, requires the use of actuarial
science. Id. The difference between the two methods is that under a present division,
the alternate payee receives a definite amount of non-IPERS marital assets immediately,
and under a QDRO’s dollar amount division, the alternate payee receives a definite
amount of IPERS benefits sometime in the future. Thus, an equitable division under a
QDRO’s dollar amount method is even more complicated than a present division of the
pension with non-IPERS assets because it requires an actuary to consider the date of
distribution as an additional variable. For these reasons, we again emphasize “it is
normally desirable to divide a defined-benefit plan by using the percentage method.” Id.at 248–49.
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negligence was not a factual cause of the damages claimed by Steven.
The damages claimed by Steven are based on the amount of payments
Karen has received and will continue to receive under the service factor
percentage method of division in excess of $19,100. Yet, Steven would
have suffered this same damage if Herman had drafted a stipulation
based on an approved method of division.
The important point is the stipulation clearly expressed the
intention of the parties to divide the pension equally. A defined-benefit
pension plan such as IPERS can only be divided in one of several
methods. If the parties agree to split the pension equally, any method of
division will produce the same basic result if properly done. Importantly,
there is no claim of negligence raised by Steven that the method
ultimately used in this case was misapplied. Thus, the damages claimed
by Steven would have occurred in any “one-half” division under our
approved methods of division. Steven would have suffered the same
harm he now claims if Herman had drafted the stipulation to equally
divide the pension under any approved method of division. The
causation element was not satisfied as a matter of law.
The next ground of negligence concerns Herman’s failure to draft
a QDRO that would limit Karen’s share to a specific dollar amount. More
specifically, Steven claims Herman could have drafted a QDRO to limit
the amount of future benefits available to Karen under the IPERS plan.
Yet, Steven would again suffer the same damage he now claims (the
amount of benefits Karen has received and will receive in excess of
$19,100) if Herman had drafted a QDRO with a specific dollar limitation.
While a QDRO can limit the benefits to an alternate payee, any limitation
on the future benefits available to Karen in this case would need to
represent one-half of the value of the pension. This amount would be the
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practical equivalent of the amount Karen is receiving now. Steven
overlooks that the pension was to be split in “one-half” shares, and that
under any allowable method of division, “one-half” would equal more
than the $19,100 he claims. See Sullins, 715 N.W.2d at 249 (“[T]he
present value of her IPERS plan is more than the present value of her
contributions.”). Although the parties believed the value of the pension
was $38,200, that figure only represented the value of the pension as a
liquid asset. The pension could only be divided into equal shares of
$19,100 as a liquid asset. However, as a benefit payable in the future,
its present value was not equivalent to its investment value. See Benson,
545 N.W.2d at 256 (recognizing the difference between investment value
(amount a pensioner would be entitled to receive if retired immediately
and began drawing) and amount pensioner will receive when benefits are
drawn after retirement). Thus, if Herman had properly prepared a QDRO
to cap Karen’s future benefits as Steven claimed he should have done,
then Herman would have been required to determine a cap based upon
an equal division of the pension as a future benefit. Such a limitation
would far exceed $19,100. See Sullins, 715 N.W.2d at 250 (noting “the
district court’s valuation and distribution . . . fell far short of our
accepted methods”). Consequently, this claim of negligence does not
satisfy the causation element because Steven would have suffered the
same harm he now claims if Herman had drafted a QDRO to limit
Karen’s future distribution. Such a method of division would have
achieved a “one-half” division amounting to more than $19,100, and
which would be, for all intents and purposes, the same as the division
the parties have received.
The next ground of negligence concerns the claim that Herman
failed to tell Steven that he could have divided the pension with non-
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pension benefits instead of dividing the pension under a QDRO. Armed
with this advice, Steven claims he could have preserved the pension for
himself by giving Karen $19,100 in non-pension assets.
This ground of negligence also fails to support causation because
Steven would have suffered the same harm he now claims if the pension
had been divided using non-pension assets. Steven’s claim of negligence
overlooks that if Herman would have drafted a stipulation to divide the
pension with non-pension assets, the value of the pension under this
method of division would far exceed $38,200. See id.; Benson, 545
N.W.2d at 256. When a pension is divided by means of non-pension
assets, the non-pensioner spouse gives up a future interest in the
pension and must consequently receive non-pension assets equal to the
present value of that future interest.
The final ground of negligence was that Herman failed to inform
Steven of the change in the method of dividing the pension from an
immediate lump sum payment to the percentage method of division. As
with the other grounds of negligence, however, Steven would have
suffered the same harm he now claims if Herman had told him of the
change in the method of division. This result occurs because any
method of division ultimately used to divide a pension equally will, when
properly used, achieve an equal division. Of course, an equal division
was the outcome sought by Steven and the outcome he ultimately
obtained.
The common theme with all four claims of negligence is that the
parties desired an equal division of the pension, and the only time such a
result will not be achieved is when the method employed is erroneously
utilized. This was not the case here. Karen received a “one-half” share
in the “normally desirable” way, and Steven has essentially suffered the
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same harm he would have suffered had Herman not been negligent.
Sullins, 715 N.W.2d at 248. In other words, whatever method Steven
would have preferred to use to divide his IPERS pension, a “one-half”
division under any method would have yielded the same result. While
the division could have been accomplished by different methods, each
with its own advantages and disadvantages, a division by “one-half”
under any method is the practical equivalent for the purposes of
determining causation under Steven’s theory of compensatory damages.
Thus, in the end the negligence of Herman in failing to advise Steven
about the methods to equally divide a pension and to draft a stipulation
and QDRO to fully protect his one-half interest was not a cause of the
damage claimed because the method of division ultimately used by
Herman gave Steven his equal division of the pension. This division was
not what Steven expected, but his expectation or misunderstanding of
the method of distribution was not a cause of the damages claimed. The
negligence of Herman in failing to advise Steven of the change may have
caused some damages, such as incidental and consequential damages,
but not the compensatory damages (difference between the amount of
benefits under the stipulation and the amount of benefits under the
QDRO that was entered) sought by Steven.
The district court erred by failing to grant Herman’s motion for
judgment notwithstanding the verdict. As a matter of law, there was no
causation between the theories of negligence alleged by Steven and his
theory of damage. Consequently, it is unnecessary to address the
additional issues raised in the appeal and cross-appeal. We vacate the
decision of the court of appeals and reverse the judgment entered by the
district court.
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DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT REVERSED.
All justices concur except Hecht, J., who takes no part.