Berggren v. Schonebaum , 2017 SD 89 ( 2017 )

#28216-r-JMK
2017 S.D. 89
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
JOHN BERGGREN, Plaintiff,
v.
JEFF SCHONEBAUM d/b/a
SCHONEBAUM QUARTER HORSES, Defendant,
and
LAWRENCE MEENDERING, Defendant and Appellee.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SIXTH JUDICIAL CIRCUIT
GREGORY COUNTY, SOUTH DAKOTA
****
THE HONORABLE JOHN L. BROWN
Judge
****
JAKE FISCHER
SCOTT SWIER
MICHAEL A. HENDERSON of
Swier Law Firm, Prof. LLC Attorneys for former plaintiff
Corsica, South Dakota attorney Jake Fischer and
appellant.
GEORGE F. JOHNSON of
Johnson Pochop & Bartling Law Office
Gregory, South Dakota Attorneys for defendant and
Appellee.
****
ARGUED ON
NOVEMBER 7, 2017
OPINION FILED 12/20/17
#28216
KERN, Justice
[¶1.] Lawrence Meendering filed a motion to disqualify opposing counsel
Jake Fischer for an alleged violation of the South Dakota Rules of Professional
Conduct. Meendering also sought attorney’s fees from Fischer for costs incurred in
bringing the motion. The circuit court, citing our decision in Jacobson v. Leisinger,
2008 S.D. 19, 746 N.W.2d 739 (Leisinger II), granted the motion. In imposing fees,
the court reasoned that sanctions were appropriate because the motion to disqualify
was “other litigation” resulting from Fischer’s alleged ethical violation. We reverse.
Facts and Procedural History
[¶2.] In 2009, Meendering loaned Jeff Schonebaum approximately $17,000
to purchase a stud horse named Peppy from Heaven (Peppy). In April 2013,
Schonebaum sold Peppy to John Berggren for approximately $11,000. Berggren
intended to use Peppy to artificially inseminate other horses. However, an
appraisal of Peppy’s semen indicated it was unsatisfactory and too thin to freeze. In
January 2014, Berggren sued Schonebaum, claiming Schonebaum misrepresented
Peppy’s ability to breed. Fischer of Swier Law Firm represented Berggren in the
matter.
[¶3.] Sometime later in 2014, Meendering paid a visit to Schonebaum
regarding personal loans Meendering made to him. Meendering, suspecting
Schonebaum would not settle the remaining debts, visited an attorney in Wagner,
South Dakota, on the return trip home. The attorney expressed his disinterest in
the case and recommended Meendering contact the Swier Law Firm in Avon, South
Dakota. Later that day, Meendering drove to Avon and met with Fischer in an
-1-
#28216
unscheduled visit. Meendering claims the two discussed the money he loaned
Schonebaum. According to Meendering, Fischer failed to disclose that he
represented Berggren in a lawsuit against Schonebaum.
[¶4.] On January 13, 2015, Fischer deposed Schonebaum. During the
deposition, the following exchange occurred:
Q. Do you know Lawrence Mendring [sic]?
A. Yeah.
Q. Who is he?
A. He’s my banker.
Q. Where is—what bank does he work for?
A. He didn’t work for no bank. He was a private lender.
Q. And where does he live?
A. Sheldon, Iowa.
Q. Was he involved in the purchase of Peppy?
A. Yeah.
Q. How so?
A. He was my lender.
Q. Tell me how that deal worked.
Schonebaum then explained the terms of the loan he received from Meendering.
When asked whether he still banked with Meendering, Schonebaum responded that
he did not.
[¶5.] In a letter sent by Fischer to Meendering dated August 24, 2015,
Fischer introduced himself as the lawyer Meendering met the year prior. Fischer
explained that he was currently involved in a lawsuit against Schonebaum
regarding the sale of Peppy. Fischer requested Meendering contact him by phone to
speak about Schonebaum. Schonebaum and Meendering claim Meendering and
Fischer later spoke over the phone.
-2-
#28216
[¶6.] In October 2015, Berggren amended his complaint against
Schonebaum to include Meendering as a defendant. Berggren alleged that
Meendering formed a partnership with Schonebaum to purchase, use, and sell
Peppy and that Meendering was jointly liable for Schonebaum’s wrongful conduct.
On August 18, 2016, Meendering filed a motion seeking Fischer’s disqualification
from the case. Meendering also requested sanctions in the form of attorney’s fees
for costs incurred in bringing the motion, arguing that Fischer violated Rule 1.18 of
the Rules of Professional Conduct.1 Rule 1.18 provides in part that an attorney
shall not use or reveal information learned in a consultation with a prospective
client. SDCL ch. 16-18 app. Rule 1.18(b). Further, an attorney shall not “represent
a client with interests materially adverse to those of a prospective client in the same
or a substantially related matter if the lawyer received information from the
prospective client that could be significantly harmful to that person in the matter[.]”
SDCL ch. 16-18 app. Rule 1.18(c).
[¶7.] On October 12, 2016, the circuit court held a hearing on the motion to
disqualify; and on October 24, 2016, granted the motion disqualifying Fischer from
the case. The court also requested further briefing on the issue of attorney’s fees,
which the parties provided. On February 27, 2017, the circuit court issued a
memorandum opinion awarding Meendering $6,416.18 in attorney’s fees assessed
against Fischer for expenses incurred in connection with the motion to disqualify.
1. Meendering also moved to disqualify Swier Law Firm under Rule 1.10, which
generally provides that an attorney’s conflicts of interest are imputed to all
other members of the attorney’s firm.
-3-
#28216
The court noted that Meendering cited no specific statutory authorization for an
award of attorney’s fees arising out of a violation of the Rules of Professional
Conduct. Further, the court observed Meendering never made a formal request for
sanctions under SDCL 15-6-11(c) (Rule 11). Nevertheless, the court, relying on
Leisinger II, awarded Meendering attorney’s fees. In Leisinger II, we held that
attorney’s fees may be awarded when the fees are “incurred in other litigation which
is necessitated by the act of the party sought to be charged.” 2008 S.D. 19, ¶ 15,
746 N.W.2d at 743.
[¶8.] Fischer appeals from the circuit court’s order awarding attorney’s
fees,2 arguing that Leisinger II is inapplicable and that attorney’s fees are not
appropriate under Rule 11. Meendering, as appellee, argues that attorney’s fees
were an appropriate sanction under the “other litigation” exception in Leisinger II.3
Analysis and Decision
[¶9.] “For purposes of awarding attorney fees, South Dakota subscribes to
the ‘American Rule.’” Rupert v. City of Rapid City, 2013 S.D. 13, ¶ 32, 827 N.W.2d
55, 67. Generally, the American Rule requires that each party in a civil case bear
their own attorney’s fees. Id. However, the parties may enter into an agreement
entitling the prevailing party to attorney’s fees, and attorney’s fees may be charged
against a party if authorized by statute. Id.; see also SDCL 15-17-38. In
2. Fischer does not appeal the circuit court’s order disqualifying him from the
case.
3. Although Schonebaum d/b/a Schonebaum Quarter Horses was named as a
defendant/appellee, Schonebaum, through counsel, indicated he would not
file a brief in this matter.
-4-
#28216
determining whether a statute permits recovery of attorney’s fees from an opposing
party, “[t]his Court has rigorously followed the rule that authority to assess
attorney fees may not be implied, but must rest upon a clear legislative grant of
power.” Rupert, 2013 S.D. 13, ¶ 32, 827 N.W.2d at 67.
[¶10.] Normally, an award of attorney’s fees is reviewed for an abuse of
discretion. See In re Estate of Finch, 2017 S.D. 15, ¶ 20, 893 N.W.2d 783, 788.
However, the circuit court concluded that attorney’s fees were appropriate in this
case based on an analysis of Leisinger II, and we review conclusions of law de novo.
Tri-City Assocs., L.P. v. Belmont, Inc., 2014 S.D. 23, ¶ 19, 845 N.W.2d 911, 916. The
court, in awarding attorney’s fees, observed that “[Meendering] is apparently
relying on the [circuit] court’s inherent powers to enforce the Rules of Professional
Responsibility.” Citing our holding in Leisinger II as “credence [for] such an
argument,” the court conflated its inherent authority to enforce the Rules with
Leisinger II’s “other litigation” exception to the American Rule. The court stated
that it “believe[d] that the Motion to Disqualify constitutes ‘other litigation which is
necessitated by the act of the party sought to be charged’ and as such, attorney fees
as a sanction for ethics violations in this litigation [were] warranted.”
[¶11.] However, neither Leisinger II nor its antecedents support an award of
attorney’s fees on this record. Leisinger II followed a previous decision by this
Court, Leisinger v. Jacobson, 2002 S.D. 108, 651 N.W.2d 693 (Leisinger I), reversing
an award of $120,000 in punitive damages in favor of Jacobson, the plaintiff.
Leisinger II, 2008 S.D. 19, ¶ 2, 746 N.W.2d 739, 741. In Leisinger I, we held that
the award should be reduced to $25,000. Id. In the alternative, we authorized a
-5-
#28216
new trial on the issue of punitive damages if Leisinger rejected the reduced award.
Id. Leisinger rejected the award. Id. However, Leisinger failed to retry the case
within one year of the remand pursuant to SDCL 15-30-16 (repealed 2011), thereby
forfeiting any right to punitive damages. Id. Regardless, Leisinger refused to
return the $120,000 to Jacobson, who in turn obtained a court order requiring
return of the money. Id. ¶ 3. When Leisinger failed to comply with the court order,
Jacobson filed a conversion action against Leisinger. Id. ¶ 5. After successfully
recovering the $120,000, Jacobson moved for attorney’s fees related to the various
court proceedings required to reclaim her money, which the circuit court denied. Id.
¶ 8, 746 N.W.2d at 742.
[¶12.] Jacobson appealed the denial, and we reversed and remanded. Id.
Although we observed that “[g]enerally . . . attorney fees are not recoverable in civil
actions,” we “adopt[ed] the rationale that . . . ‘in conversion cases, the reasonable
and necessary expenses incurred in recovering the property are a proper element of
damage.’” Id. ¶ 14, 746 N.W.2d at 743 (quoting State v. Taylor, 506 N.W.2d 767,
768 (Iowa 1993)).4 In so holding, we analogized the case to Foster v. Dischner, 51
S.D. 102, 212 N.W. 506 (1927). Dischner involved a plaintiff suing for attorney’s
4. We also observed that “the lawsuit [in Leisinger I was] more complicated
than the typical conversion pleadings” because “Leisinger defied multiple
court orders” and proffered meritless legal defenses. Leisinger II, 2008 S.D.
19, ¶ 17, 746 N.W.2d at 743-44. We held that “attorney fees may be
appropriately awarded at the discretion of the trial court upon a
determination that the failure to comply with the order rose to the level of
contempt.” Id. Although a violation of the Rules of Professional Conduct
arguably “rise[s] to the level of litigation misconduct,” the circuit court here
made no finding that Fischer was in contempt or “refused to obey an
affirmative court order.” See id. Additionally, the results of the disciplinary
proceeding referenced in Fischer’s reply brief are not included in this record.
-6-
#28216
fees after the defendant subjected his land to an unlawful levy. 212 N.W.2d at 506.
The plaintiff received an award of attorney’s fees, which was affirmed on appeal.
Id. at 507. In Leisinger II, we noted that like in Dischner, Jacobson sought “similar
damages, which resulted from her attempt to recover her property.” 2008 S.D. 19, ¶
16, 746 N.W.2d at 743 (emphasis added). Leisinger’s actions “left Jacobson with
only one course of action, i.e., further litigation.” Id. ¶ 15. We also reiterated that
attorney’s fees may be recovered in actions sounding in tort if “incurred in other
litigation which is necessitated by the act of the party sought to be charged.” Id.
[¶13.] In Grand State Property, Inc. v. Woods, Fuller, Shultz, & Smith, P.C., a
real estate company sued the Woods law firm for legal malpractice, breach of
fiduciary duties, and punitive damages. 1996 S.D. 139, ¶ 1, 556 N.W.2d 84, 85. The
circuit court granted summary judgment in favor of Woods, and we affirmed. Id.
With respect to legal malpractice and breach of fiduciary duties, the circuit court
“found . . . that Grand had failed to make any showing of damages suffered by
Grand on either claim[.]” Id. ¶ 17, 556 N.W.2d at 88. Grand argued that it incurred
“litigation expenses in attempting to enforce [a] light easement which [a Woods
attorney] had allegedly advised was valid[.]” Id. ¶ 19. However, in holding that the
“other litigation” exception to the American Rule did not apply, we observed that
“[t]he underlying declaratory judgment action for which Grand claims entitlement
to a return of attorney fees was not necessitated by the conduct or advice rendered
by Woods.” Id.
[¶14.] Our reference to the “other litigation” exception in Grand comes from
Hill v. Okay Construction Co., 252 N.W.2d 107, 121 (Minn. 1977). In Hill, both the
-7-
#28216
alleged sellers of a business and its alleged buyer were represented by a single
attorney. Id. at 111. The parties disputed whether the alleged sellers actually sold
the business or whether the alleged buyer simply lent them money and received the
title to their building and furniture as security. Id. Because of the attorney’s
negligence, both the alleged sellers and the alleged buyer were forced into litigation
with creditors after the business failed. Id. at 121. The jury found the attorney
negligent, and the trial court assessed attorney’s fees “as a part of the measure of
damage [plaintiffs] suffered” due to the other litigation with creditors. Id. at 121.
The Minnesota Supreme Court affirmed the award of attorney’s fees. It observed
that in prior cases where the “other litigation” exception had been applied, “the
plaintiff, because of the tortious conduct of the defendant, was compelled to enter
litigation with a third party to protect his rights.” Id. Observing that plaintiffs
were forced to litigate against third party creditors due to the attorney’s
malpractice, the Minnesota Supreme Court held that the exception applied.
[¶15.] The present case does not fit within this limited exception authorizing
an award of attorney’s fees. The cases above involved plaintiffs being forced into
“other litigation,” either in a separate action to protect a property right or with third
parties due to a wrongdoer’s conduct. Moreover, the attorney’s fees in those cases
were not authorized as sanctions or costs in the existing litigation, but as damages
in tort arising from other litigation. Here, the circuit court awarded attorney’s fees
as a sanction for conduct in the existing litigation pursuant to Leisinger II.
However, Meendering did not file a conversion action to protect a specific property
right as in Leisinger II, which narrowly held that attorney’s fees could be awarded
-8-
#28216
as an element of damages for conversion. 2008 S.D. 19, ¶ 14, 746 N.W.2d at 743.5
And although Meendering argues Berggren would not have sued him but for
Meendering’s meeting with Fischer in 2014, the motion to disqualify does not
constitute other litigation against third parties. See Grand, 1996 S.D. 139, ¶ 19,
556 N.W.2d at 88 (denying fees because defendants’ actions did not necessitate
other litigation); Hill, 252 N.W.2d at 121 (awarding fees because defendant’s actions
forced plaintiffs into litigation with third-party creditors). Rather, Meendering’s
motion to disqualify was instead a component of the same litigation.
[¶16.] Fischer also argues that Rule 11 does not apply and cannot serve as a
basis for the award of fees. Although the circuit court acknowledged that
Meendering never made a formal Rule 11 motion for attorney’s fees, the court
stated that “it could be argued that there has been substantial compliance with the
procedural aspects of the rule.” But Meendering does not argue that he complied
with the procedural requirements of Rule 11; rather, he argues that sanctions are
permissible under the “other litigation” exception to the American Rule.
Accordingly, we decline to address whether the award constituted a proper sanction
under Rule 11.
5. We clarified that “the damages must be bifurcated between ‘attorney fees
incurred as a result of the conversion litigation as compared to attorney fees
incurred in recovering possession of the property. The former are not
compensable, the latter are.’” Leisinger II, 2008 S.D. 19, ¶ 14, 746 N.W.2d at
743 (quoting Motors Ins. Corp. v. Singleton, 677 S.W.2d 309, 315 (Ky. Ct.
App. 1984)).
-9-
#28216
Conclusion
[¶17.] Fischer’s alleged violation of the Rules of Professional Conduct did not
result in “other litigation” comprehended by either Leisinger II or the precedent on
which it relies. Fischer’s conduct did not necessitate further litigation to protect a
property right. Further, the motion to disqualify was a component of the same, not
other, litigation, and the procedural requirements for Rule 11 sanctions were not
met. Therefore, we reverse.
[¶18.] GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and
JENSEN, Justices, concur.
-10-