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finding either that there was insufficient evidence to support
the assault conviction or that an otherwise unjustified lesserincluded offense instruction should have been given. We find
no merit to McBride’s assertions to the contrary.
V. CONCLUSION
We find no merit to McBride’s assertions. The State adduced
overwhelming and uncontroverted evidence that McBride
assaulted Beckwith with a knife and inflicted bodily injuries.
No lesser-included offense instruction was justified, counsel
was not ineffective for failing to request an instruction, and
the inconsistent jury verdicts do not demonstrate otherwise.
The district court committed no abuse of discretion in denying
McBride’s motion for mistrial based on a statement volunteered by a witness, stricken from the record, and the subject
of an admonishment to the jury. We affirm.
Affirmed.
Steve Sickler et al., appellants, v. Robert K irby,
individually, and Croker, Huck, K asher, DeWitt,
Anderson & Gonderinger, L.L.C., a Nebraska
limited partnership, appellees.
___ N.W.2d ___
Filed November 8, 2011. No. A-10-965.
1. Courts: Judgments: Judicial Notice. Where cases are interwoven and interdependent, and the controversy has already been considered and determined in a
prior proceeding involving one of the parties now before the court, the court has
a right to examine its own records and take judicial notice of its own proceedings
and judgment in the prior action.
2. Summary Judgment. Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose no genuine issue as to any material fact
or as to the ultimate inferences that may be drawn from those facts and that the
moving party is entitled to judgment as a matter of law.
3. Summary Judgment: Appeal and Error. In reviewing a summary judgment, an
appellate court views the evidence in a light most favorable to the party against
whom the judgment is granted and gives such party the benefit of all reasonable
inferences deducible from the evidence.
4. Malpractice: Attorney and Client: Negligence: Proof: Proximate Cause:
Damages. In a legal malpractice case, there are three basic components that
compose the plaintiff’s burden of proof: (1) the attorney’s employment, (2) the
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6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
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attorney’s neglect of a reasonable duty, and (3) that such negligence resulted in
and was the proximate cause of loss to the client; these elements are the same
general elements required in any other case based on negligence, i.e., duty,
breach, proximate cause, and damages.
Attorney and Client. A lawyer’s duty is to his or her client and does not extend
to third parties absent some facts which establish a duty.
Corporations. The more closely held the corporation, the less separable the
directors, officers, and owners are from the corporation.
Attorney and Client: Corporations: Conflict of Interest. A conflict of interest
can be avoided if there is a clear understanding with the corporate owners that the
attorney represents solely the corporation and not their individual interests.
Malpractice: Attorney and Client. Privity is not an absolute requirement for a
legal malpractice claim.
Attorney and Client. A lawyer’s duty to use reasonable care and skill in the
discharge of his or her duties ordinarily does not extend to third parties, absent
facts establishing a duty to them.
Attorney and Client: Parties: Negligence: Liability. Evaluation of an attorney’s
duty of care to a third party is founded upon balancing the following factors: (1)
the extent to which the transaction was intended to affect the third party, (2) the
foreseeability of harm, (3) the degree of certainty that the third party suffered
injury, (4) the closeness of the connection between the attorney’s conduct and
the injury suffered, (5) the policy of preventing future harm, and (6) whether
recognition of liability under the circumstances would impose an undue burden
on the profession.
Attorney and Client: Parties: Intent. The starting point for analyzing an attorney’s duty to a third party is determining whether the third party was a direct and
intended beneficiary of the attorney’s services.
Negligence. The determination of the existence of a duty and the identification
of the applicable standard of care are questions of law, but whether there was a
deviation from the standard of care, meaning that a party was negligent, is a question of fact.
Negligence: Evidence. In a negligence case, the fact finder must determine what
conduct the standard of care requires under the circumstances as presented by the
evidence, or as the fact finder determines the factual circumstances to be.
Attorney and Client: Juries: Expert Witnesses. To determine how an attorney
should have acted in a given case, the jury will often need expert testimony
describing what law was applicable to the client’s situation.
____: ____: ____. Expert testimony about the relevant law is often essential to
assist the jury in determining what knowledge is commonly possessed by lawyers
acting in similar circumstances and whether an attorney exercised common skill
and diligence in ascertaining the legal options available to his or her client.
Appeal and Error. An appellate court is not obligated to engage in an analysis
which is not necessary to adjudicate the case and controversy before it.
Appeal from the District Court for Buffalo County: Alan
G. Gless, Judge. Affirmed in part, and in part reversed and
remanded for further proceedings.
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Richard J. Rensch and Sean P. Rensch, of Rensch & Rensch
Law, for appellants.
William R. Johnson, of Lamson, Dugan & Murray, L.L.P., and
Raymond E. Walden, of Walden Law Office, for appellees.
Inbody, Chief Judge, and Sievers and Cassel, Judges.
Sievers, Judge.
INTRODUCTION
This is a legal malpractice action in which the district court
for Buffalo County granted summary judgment to the defend
ant law firm of Croker, Huck, Kasher, DeWitt, Anderson &
Gonderinger, L.L.C. (Croker Huck), and its member attorney
Robert Kirby (collectively the defendants). In addition to
claims that there were genuine issues of material fact for
trial, we address issues generated by the fact that the defend
ants were engaged to represent only a closely held corporation, Baristas & Friends, Inc. (B&F), while the Kearney,
Nebraska, law firm of Jacobsen, Orr, Nelson, Wright and
Lindstrom, P.C. (Jacobsen Orr), represented the individuals
owning and operating B&F, Steve Sickler (Steve) and Cathy
Mettenbrink (Cathy). The litigation has its origins in the fact
that attorney Jeffrey Orr of Jacobsen Orr drafted franchise
disclosure statements that did not comply with applicable
franchising law for use in selling franchises. We find that
the summary judgment entered against B&F was error. We
further conclude that Steve and Cathy were “third parties” to
whom the defendants owed a duty of reasonable care. Finally,
we conclude that what the standard of care was, whether
it was breached, and what damages, if any, resulted are all
genuine issues of material fact for trial with respect to B&F
as well as Steve and Cathy.
FACTUAL AND PROCEDURAL
BACKGROUND
In 2001, Steve and Cathy began operating a “European
style” coffeehouse in Kearney named “Barista’s Daily
Grind.” The success of the coffeehouse caused them in 2002
to explore the franchising of their specialty retail coffee
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b
usiness, and they asked Orr to advise them on franchising
laws and to prepare the necessary documents to sell franchises. Orr agreed to do so, although he had no expertise in,
nor experience with, franchising that would qualify him to do
this type of work.
B&F was formed to be the franchisor. Franchisees would
do business under the name “Barista’s Daily Grind Espresso to
Go.” Steve and Cathy formed W.E. Corporation to own the real
estate and buildings used in Steve and Cathy’s own retail coffee
business and in their franchising business. They formed another
corporation, Cup-O-Coa, Inc., to be the distribution arm for
products used by the franchisees of B&F. All of the corporations formed by Steve and Cathy paid rent to W.E. Corporation
for their buildings. In October 2002, Orr completed a draft
of the franchise agreement, and in December, he drafted the
disclosure statement—a crucial document, as will be explained
below. From 2003 to 2006, B&F sold 22 franchises and collected over $800,000 from the sales.
The beginning of the events that ultimately led to the underlying lawsuit, in which the defendants are accused of legal malpractice, began unfolding in July 2004. At that time, a banker
in Colorado requested from Steve B&F’s “Uniform Franchise
Offering Circular” (UFOC) on behalf of a prospective fran
chisee. Steve did not know what a UFOC was, and he referred
the banker to Orr. Orr determined that the disclosure statement
being used—the statement in its first version—was “‘compliant
and valid.’” State ex rel. Counsel for Dis. v. Orr, 277 Neb. 102,
104, 759 N.W.2d 702, 705 (2009). Steve testified that Orr told
him the UFOC was a requirement of federal law which B&F
was “‘probably going to have to get’” if it was “‘going to be
selling franchises out of state.’” Id.
[1] At this juncture, we note that a disciplinary proceeding
was later instituted against Orr in which it was found that he
had violated his oath of office and the attorney disciplinary
rules requiring an attorney to competently represent a client.
See Orr, supra. The Nebraska Supreme Court agreed with
the referee’s conclusion that Orr had negligently determined
that he was competent to undertake this specialized franchising work for B&F and Steve and Cathy, and the court
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imposed a public reprimand as a sanction. See id. Where cases
are interwoven and interdependent, and the controversy has
already been considered and determined in a prior proceeding
involving one of the parties now before the court, the court has
a right to examine its own records and take judicial notice of
its own proceedings and judgment in the prior action. State ex
rel. Pederson v. Howell, 239 Neb. 51, 474 N.W.2d 22 (1991).
Thus, some of our background derives from the Supreme
Court’s opinion in Orr’s disciplinary proceeding.
In August 2004, Orr revised the franchise agreement and
disclosure statement at Steve’s request due to problems that
B&F was having with a Des Moines, Iowa, franchisee whose
attorney had sent a letter to Steve in February 2004 suggesting
that B&F’s disclosure statement delivered to the proposed Iowa
franchisee did not comply with federal law. This resulted in
Orr’s production of the second disclosure statement—or “second edition,” as it is referenced at times in the record. Dennis
Turnbull in Colorado and Jeffrey Nesler in Iowa purchased
franchises after receiving the second disclosure statement, as
did others.
In October 2004, B&F filed suit with Jacobsen Orr as counsel in the district court for Buffalo County against its Colorado
franchisee, Turnbull, seeking to rescind the franchise. Turnbull
filed a counterclaim seeking damages and rescission due to the
violations of the Federal Trade Commission (FTC) rules found
at 16 C.F.R. § 436.3 et seq. (2001) dealing with the contents
of franchise disclosure statements. Turnbull also claimed violations of Nebraska’s Seller-Assisted Marketing Plan Act, Neb.
Rev. Stat. §§ 59-1701 to 59-1762 (Reissue 2010). Although
Orr remained primary counsel for B&F, he had the firm’s
associate, Bradley Holbrook, take over the handling of the
Turnbull litigation. The ultimate outcome of that litigation was
the entry of a judgment dated February 2, 2007, against B&F
in the amount of $132,422.95, which included slightly over
$49,000 in attorney fees awarded after the court found that the
violations alleged in the counterclaim had occurred as a matter
of law.
Returning to the Iowa problem, on April 25, 2005, fran
chisee Nesler’s attorney sent a letter to Steve claiming Nesler’s
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entitlement to rescission, attorney fees, and other damages
because of violations of the FTC rules and Iowa statutes relating to franchises, and warning that the owners of B&F, Steve
and Cathy, could be personally liable for return of the franchise
fee as well as other damages.
At this juncture, Steve, according to his affidavit, “demanded
that Orr seek a second opinion regarding the legality of the
franchising documents [he and Cathy] were using.” Orr subsequently advised Steve and Cathy that his law firm, Jacobsen
Orr, had contacted an Omaha, Nebraska, attorney for a second
opinion about the documents in question—the second disclosure statement and the franchise agreement. The attorney that
Orr contacted was Kirby of Croker Huck. Holbrook and Orr
talked with Kirby, and then Holbrook wrote a confirming letter to Kirby about what he was to do—critique Orr’s seconde
dition disclosure statement and the franchise agreement for
compliance with Iowa and federal law. Holbrook provided copies of the documents to Kirby, along with a copy of the April
25, 2005, letter from Nesler’s counsel setting forth the basis of
his assertion that B&F’s disclosure statement was insufficient
and in violation of Iowa and federal law. Because of its importance to the instant lawsuit, we quote the following portions of
the letter from Holbrook to Kirby:
As mentioned, we would like your [sic] and your firm
to do two things. First, we would like a legal opinion as
to the compliance of the disclosure statement provided to
. . . Nesler with the Iowa code as cited in [Nesler’s attorney’s] letter. Please also feel free to broaden the scope to
any other area of the Iowa code you feel would be pertinent to the sale of this franchise and the procurement of
the disclosure statement to . . . Nesler.
Secondly, we would ask that you also review the disclosure statement for its compliance with the [FTC] rule
16 C.F.R. §436. In addition to that opinion, please feel
free to include any failures to comply with the [FTC]
rule and the level of material non-compliance. What we
are interested in, in regards to the [FTC] rule, is if, in
fact, the disclosure statement fails to meet the [FTC] rule,
whether that would be deemed a material or non-material
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non-compliance and what the effect of the non-compliance
would be on the transaction.
As regards to [sic] the legal opinion on the [FTC] rule,
I would ask that you keep that billing separate from the
legal opinion on the disclosure statement and the Iowa
code and related section[s] of the Iowa code that touch on
the sale of franchises such as in the present case. Please
send both billings directly to me at my office.
Moreover, Holbrook specified in his letter to Kirby that all
communication regarding the review was to be via Jacobsen
Orr. Although Steve had requested this review of Orr’s documents, neither he nor Cathy selected Croker Huck and Kirby,
and they never had any direct contact with Croker Huck or
Kirby. And, while Holbrook maintains that he provided a copy
of Kirby’s critique of the documents to Steve, Steve’s affidavit says that he did not ever see Kirby’s opinion. Kirby and
another lawyer at his firm completed the requested review and
wrote to Holbrook on June 21, 2005, advising that B&F’s franchise documents had numerous defects—and that even if not
independently material, such taken together would be material
violations. Kirby enclosed a 13-page memorandum from his
associate detailing the defects. Moreover, Kirby pointed out
that under Iowa law, a franchisor has the option of complying
with the FTC rules for disclosure via a UFOC or an Iowa disclosure form provided for in the Iowa statutes, but that B&F’s
disclosure statement satisfied neither Iowa nor federal law.
Kirby stated that under the FTC rules, there is no private right
of action, as such is brought by the FTC, but there is a private
right of action under the Iowa statutes. This opinion arrived
about a week after Nesler filed suit against B&F, and Steve
and Cathy personally, in the Polk County, Iowa, district court.
Holbrook then engaged Kirby to defend only the corporation,
B&F, and Holbrook assumed the responsibility for defending
Steve and Cathy.
On August 10, 2005, Holbrook wrote a letter to Kirby containing the suggested strategy of delaying the litigation and
working toward a settlement with Nesler whereby he would
be replaced by another franchisee. Nonetheless, in the letter,
Holbrook tells Kirby, “Frankly, feel free to handle it any way
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you wish.” While Holbrook testified that Steve told him he
had someone lined up to step into the Nesler franchise, Steve
says that he wanted to find someone to do that, but had not.
Kirby testified that he did not ever know, discover, or make
inquiry about who authored the documents that were being
challenged in the lawsuit in which he was defending B&F
“[b]ecause it wasn’t important in connection with the defense
of the Iowa litigation.” Thus, Kirby did not ask Holbrook, or
B&F’s officers or directors, who had drafted the documents
that he knew to be defective and which would subject his
client, B&F, to a variety of adverse consequences. The evidence here, as well as the Supreme Court’s opinion, makes it
uncontroverted that Orr was the drafter of the first and second
disclosure statements. See State ex rel. Counsel for Dis. v.
Orr, 277 Neb. 102, 759 N.W.2d 702 (2009). Additionally, the
evidence is that Orr used Kirby’s critique to attempt to draft
a “third disclosure statement” that complied with applicable
law—although Kirby was not told that this was being done.
B&F sold seven more franchises using the third iteration of
Orr’s disclosure statement.
In November 2005, B&F was notified that it was under
investigation by the FTC, at which point Holbrook contacted an attorney specializing in franchise law. That attorney
reviewed the franchise documents, including the third disclosure statement, and found that even the third edition did not
comply with FTC requirements, describing the deficiencies as
“‘major.’” Orr, 277 Neb. at 106, 759 N.W.2d at 706. It was
not until after this occurrence that Orr’s law firm withdrew
from the representation of Steve and Cathy. By April 2006,
the franchising of B&F had been shut down as the adverse
consequences of the defective franchising documents continued to pile up. These consequences ultimately included
an action against B&F by the U.S. Department of Justice
on behalf of the FTC that resulted in injunctive relief plus a
“suspended” civil penalty judgment of $242,000. An enforcement action by the Nebraska Department of Banking for failure to secure the required exemption provided for under the
Seller-Assisted Marketing Plan Act, §§ 59-1701 to 59-1762,
was also filed.
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Returning to the Iowa lawsuit by Nesler, it was settled with
the execution by Nesler of a settlement agreement and mutual
release on December 21, 2005. This occurred after the execution by Steve and Cathy on December 13 of their personal
confession of judgment in the amount of $45,000, which was
not to be filed if paid with interest by February 24, 2006.
Kirby’s defense of B&F in the Nesler lawsuit turned out to be
to simply follow Holbrook’s instructions. Holbrook’s affidavit
recounts that he informed Kirby not to perform any discovery,
to get an extension of time to answer the suit, and to negotiate
a settlement. Holbrook further explained in his affidavit that
only he communicated with Steve and Cathy about the Nesler
litigation, including about Nesler’s demand that any settlement
include Steve and Cathy’s personal confession of judgment. In
fact, the evidence is that Kirby never communicated directly
with Steve or Cathy about the Nesler litigation, and of course,
the only way to communicate directly with the closely held
corporate client, B&F, was via Steve and Cathy. The lawsuit in
which Kirby was defending alleged that Steve and Cathy were
“principal executive officers or directors” of B&F.
Holbrook testified via his affidavit that on June 28, 2005,
he sent Steve a letter discussing a memorandum setting forth
Kirby’s opinions about the adequacy of the franchise disclosures that had been made to Nesler. Kirby’s billings for the
Croker Huck law firm reflected that the client was “Barista’s
and Friends, Inc.,” but the bills were sent to Holbrook for the
work done in reviewing the franchising documents as well as
for the defense of the Nesler lawsuit, per Holbrook’s instructions to Kirby.
On October 17, 2007, the U.S. Department of Justice filed
suit against B&F as well as against Steve and Cathy, individually and as corporate officers, seeking “Civil Penalties,
Permanent Injunction and other Equitable Relief” in the U.S.
District Court for the District of Nebraska. Summarized, the
suit alleged that the defendants had sold coffeeshop franchises
since 2003 under the trade name “Barista’s Daily Grind”
in violation of the “Franchise Rule.” The alleged violations
were generally that such sales were made without the disclosures required prior to sale of a franchise by the UFOC,
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which the FTC had authorized for franchisors to comply
with the “Franchise Rule.” This litigation was resolved by a
“Stipulated Judgment and Order for Permanent Injunction”
entered October 23, 2007, which, among many other conditions and prohibitions, included a suspended civil penalty judgment of $242,000.
The record before us contains evidence and testimony
offered by the defendants from qualified experts asserting that
the defendants’ representation of B&F comported fully with
the standard of care and, moreover, that the defendants owed
no duty to Steve and Cathy. But, because the function of the
trial court and, in turn, ours, on a motion for summary judgment, is not to decide the issue of fact, but, rather, to determine
whether a genuine issue of material fact exists for trial, we
do not detail the expert testimony that favors the defendants.
Rather, we focus on the expert witness evidence offered by the
plaintiffs in opposition to the defendants’ motion for summary
judgment and in support of the plaintiffs’ own motion for summary judgment.
Gregory Garland, an Omaha trial attorney, provided expert
testimony for the plaintiffs, although he conceded he was not
an expert in the area of franchising. Thus, he did not offer
any opinions as to the sufficiency of the franchise documents
and disclosure statements. Garland set forth a virtual smorgasbord of negligence acts or omissions by Kirby with respect
to Kirby’s duties as the litigator for B&F. Garland’s opinions
are from the standpoint of an experienced litigator, and they
incorporate a discussion of the relevant ethical and professional
standards of conduct. Any analysis in this case must incorporate the backdrop that there obviously was negligence on
the part of the drafter of the franchise documents which were
given to Nesler by B&F and that Kirby, by virtue of his critique
thereof, knew this core fact.
We have boiled down Garland’s key opinions with respect to
the ways in which Kirby was negligent to the following:
• n failing to advise the clients to seek the assistance of an
I
experienced franchising attorney to rewrite the disclosure
statement, and advise that a litigator with experience in franchising be secured to defend B&F in the Nesler litigation.
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• n failing to advise the clients to immediately stop all franI
chising activity.
• n failing to determine who drafted the disclosure statement
I
at issue in the Nesler litigation.
• n failing to advise the clients to seek the advice of an experiI
enced legal malpractice attorney, given the conflict of interest
the lawyers who drafted the document had in continuing to
represent the clients—if Kirby had discovered, as he should
have, that Orr was the drafter.
• n failing to advise the clients, if Kirby knew that Orr was the
I
drafter of the documents, to bring Orr into the Nesler litigation as a third party; or, if he did not know that Orr was the
drafter of the documents, in failing to discern who the drafter
of the documents was and then advise the clients to bring that
person or entity into the Nesler case as a third party.
Garland further opined that even if Kirby’s only attorney-client
relationship was with B&F, Kirby was nonetheless dutybound
to communicate to Steve and Cathy, who were the officers and
directors of his client, B&F, that their personal lawyers—if
they were the drafters of the documents—had a conflict of
interest that prevented them from advising Steve and Cathy
about the Nesler litigation or otherwise being involved in
that litigation.
DISTRICT COURT DECISION
The decision of the district court on the motion of Croker
Huck and Kirby is very brief. It finds that there are “no gen
uine issues as to any material fact or as to the ultimate inferences that may be drawn from those facts” and that “all legal
questions presented, both as to duty and as to proximate cause,
must be decided in favor of [the] defendants as a matter of law.”
No rationale whatsoever for these conclusions is provided. The
district court simply sustained the defendants’ motion for summary judgment and denied the plaintiffs’ motion for summary
judgment. The plaintiffs appeal this decision.
ASSIGNMENTS OF ERROR
On appeal, the defendants set forth three assignments of
error, which we restate: The district court erred in (1) granting
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summary judgment and in deciding the issues of duty and
proximate cause as a matter of law; (2) excluding from evidence exhibits 69, 70, 85 through 87, and 92; and (3) denying
the defendants’ motion seeking summary judgment that the
defendants were negligent as a matter of law.
STANDARD OF REVIEW
[2,3] Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose no genuine issue as
to any material fact or as to the ultimate inferences that may
be drawn from those facts and that the moving party is entitled
to judgment as a matter of law. Lynch v. State Farm Mut. Auto.
Ins. Co., 275 Neb. 136, 745 N.W.2d 291 (2008). In reviewing a
summary judgment, an appellate court views the evidence in a
light most favorable to the party against whom the judgment is
granted and gives such party the benefit of all reasonable inferences deducible from the evidence. Id.
ANAYLSIS
[4] In a legal malpractice case, there are three basic components that compose the plaintiff’s burden of proof: (1) the
attorney’s employment, (2) the attorney’s neglect of a reasonable duty, and (3) that such negligence resulted in and was the
proximate cause of loss to the client. See Rodriguez v. Nielsen,
264 Neb. 558, 650 N.W.2d 237 (2002). These elements are
the same general elements required in any other case based
on negligence, i.e., duty, breach, proximate cause, and damages. See Stansbery v. Schroeder, 226 Neb. 492, 412 N.W.2d
447 (1987).
Did District Court Err in Granting Summary
Judgment in Favor of the Defendants
on Claims of B&F?
Jacobsen Orr, the law firm that wrote the second disclosure
statement that was provided to Nesler and others, engaged
Kirby to perform an independent review of the disclosure statement and franchise agreement for compliance with Iowa law
and with the relevant FTC rules. This occurred after Nesler’s
attorney wrote to Steve asserting that the disclosure statement
did not comply with the applicable law. As a result, Steve
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wrote an e-mail dated May 3, 2005, directing Orr to contact
a lawyer to do an independent review of the documents. The
defendants’ critique of June 21 revealed that the disclosure
statement was substantially deficient in numerous respects
under both Iowa and federal law—just as Nesler, the Iowa franchisee, had claimed.
Nesler had filed suit against B&F, as well as against Steve
and Cathy, approximately 1 week prior to the date of Kirby’s
critique of the franchise documents. Kirby’s letter accompanying the critique noted the pendency of that action, as well as
the fact that Iowa law allowed recovery of the franchise fee,
damages, and attorney fees and costs for violation of Iowa’s
franchising statutes. Holbrook’s affidavit in the summary judgment proceedings expressly states that he “requested that Kirby
communicate with only Jacobsen Orr with respect to both the
critique of the second Disclosure Statement and the representation of [B&F] in the Nesler litigation.” Kirby followed
that directive—a procedure that the plaintiffs’ expert, Garland,
opines did not meet the standard of care. The defendants
concede that B&F was Kirby’s client in the Nesler lawsuit
and that “Croker Huck owed the full array of duties implied
by the circumstances of defending a corporation against particular claims in a lawsuit.” Brief for appellees at 20. Thus,
the defendants were without question B&F’s lawyers for the
Iowa lawsuit.
Therefore, when viewing the evidence in the light most
favorable to the plaintiffs, there was concededly an employment of the defendants to defend B&F. There is ample evidence in the record of the defendants’ negligence in their representation of B&F, and there is evidence that such damaged
B&F. What damages were proximately caused by the defend
ants’ negligence, as distinguished from damages caused solely
by the negligence of Jacobsen Orr, is a question of fact.
Although we discuss damages in more detail later, suffice
it to say that at this juncture, there is evidence that Kirby’s
negligence was part of the cascade of events that led to B&F’s
ceasing what had started out as a viable franchising business—at substantial personal financial damage to Steve and
Cathy. Consequently, we find that there clearly are genuine
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issues of material fact regarding damages caused by the
defendants. Thus, summary judgment could not be granted
against B&F.
For these reasons, we find that the district court’s decision
granting summary judgment on B&F’s claim of legal malpractice against the defendants was error. As such, we reverse
that portion of the district court’s decision and remand B&F’s
cause against the defendants for further proceedings. We now
turn to perhaps the more difficult aspect of the appeal: the
summary judgment granted to the defendants on Steve and
Cathy’s claim.
Did Trial Court Properly Grant Summary Judgment
to the Defendants With Respect to Steve
and Cathy’s Personal Claims?
After our review of the record and the parties’ briefing, we
believe there are two possible rationales that the district court
might have used to conclude that, despite the evidence from
the plaintiffs’ expert detailing how the defendants breached the
standard of care with respect to Steve and Cathy, the defend
ants were, nonetheless, entitled to summary judgment on such
claims. The first is that the standard of care allowed Kirby to
restrict his communication about his critique of the disclosure
statements and the defense of the Nesler lawsuit to Jacobsen
Orr. Put another way, the district court might have determined
that the standard of care did not require Kirby to communicate
with and advise Steve and Cathy about his critique and the
defense of B&F in the Nesler lawsuit. Second, the court could
have found that there was no evidence adduced that the defend
ants’ negligence as outlined by Garland caused damage to any
of the plaintiffs. We will analyze the merit of each of those
rationales in turn.
What Duty, if Any, Did the Defendants
Owe to Steve and Cathy?
Perhaps the central failure assigned to Kirby by Garland’s
testimony is that despite knowing that the B&F disclosure
statement given to Nesler did not comply with the law and
exposed B&F, as well as Steve and Cathy, to a number of
adverse consequences, Kirby failed first to determine who
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drafted the disclosure statement and then to advise B&F—
which, as a practical matter, would mean advising Steve and
Cathy, given the closely held corporation status of B&F—that
the drafter was ultimately liable and should be made a thirdparty defendant in the Nesler lawsuit. Iowa has a third-party
procedure much like Nebraska’s, which allows a defendant to
cross-petition into the case a nonparty who may be responsible
for all or part of the plaintiff’s damages. See Iowa Code Ann.
§ 1.246(1) (West 2002).
Also, Garland opines that because of Jacobsen Orr’s production of the defective disclosure statements, that law firm had
an obvious conflict of interest that prevented it from representing Steve and Cathy in the Nesler lawsuit. It also prohibited
Jacobsen Orr from continuing to provide advice and counsel to
Steve and Cathy with respect to the consequences of its own
negligence. Kirby never advised B&F and Steve and Cathy of
Jacobsen Orr’s conflict of interest, which should have become
obvious the minute Kirby rendered his unchallenged opinion
that the franchising documents were defective and exposed the
franchisor to claims for rescission, return of franchise fees,
damages, and attorney fees. We note that there is no evidence
that Jacobsen Orr advised Steve and Cathy that they could pursue a third-party claim against Jacobsen Orr.
In contrast to Garland’s opinions, the defendants have produced evidence from experts that the failure to do these things
was not any part of Kirby’s duty to Steve and Cathy, as they
were not his clients; only B&F was. However, because of the
nature of summary judgment, we focus only on the evidence
produced by the plaintiffs in resistance to the defendants’
motion for summary judgment.
The plaintiffs’ evidence of Kirby’s negligence fundamentally involves Kirby’s failure to respond to, and communicate
about, the various implications of the undisputed fact that the
disclosure statements were defective and exposed B&F to serious liabilities, which would negatively impact Steve and Cathy,
given that B&F was their closely held corporation. The defend
ants’ basic response arises from the fact that Jacobsen Orr, as
opposed to Steve and Cathy, engaged Kirby and directed him
to communicate only with Jacobsen Orr. Thus, the defendants
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argue, “‘[A]n attorney receiving a case from another attorney
is entitled to place some reliance upon that attorney’s investigation.’” Brief for appellees at 21, quoting Smith v. Our Lady of
the Lake Hosp., Inc., 960 F.2d 439 (5th Cir. 1992). This same
proposition of law is also quoted from Jeansonne v. Bosworth,
601 So. 2d 739 (La. App. 1992), in the defendants’ brief. The
fundamental problem with this proposition is that Jacobsen
Orr engaged Kirby on behalf of B&F to independently determine whether the disclosure statements complied with Iowa
and federal law and to defend B&F in a lawsuit premised on
the defective documents. Therefore, the express purpose of
Kirby’s document review was the exact opposite of “relying”
on Jacobsen Orr’s work.
As stated above, the defendants cite Jeansonne, supra, in
their brief; however, they twist its proposition that “attorney
B” brought into a case by “attorney A” can rely on attorney
A’s investigation. The Louisiana Court of Appeals made that
statement in the context of an attorney’s failure to assert a
product liability cause of action where said attorney was
brought into the case the last few days before the statute of
limitations on that claim ran. Attorney A and his clients did
not have the allegedly defective product—a broken piece of
rope—and the court found that attorney B could rely on the
fact that attorney A and his clients had searched for, but could
not find, the rope. Jeansonne, if at all analogous to this case,
is hardly helpful to the defendants, because here, there is evidence that if Kirby did not know that Jacobsen Orr was the
drafter of the defective documents, he should have, and should
have advised his clients about the implications of that fact,
including bringing them into the Nesler suit as third parties.
Kirby was bound generally to comply with the applicable standard of care, which, according to Garland, would be to identify the documents’ drafter and then advise Steve and Cathy of
their remedy to bring the drafter into the Nesler lawsuit as a
third party.
The other case cited and relied upon by the defendants for
their claim that Kirby did not have to “second guess” Jacobsen
Orr is Smith, supra, but it is not on point. This case involved
the attempted imposition of sanctions under Fed. R. Civ. P. 11,
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which does not involve the attorney-client relationship or how
an attorney’s duty to the client is impacted by the fact attorney
A procures the involvement of attorney B in the case. However,
we cannot help but point out that after citing these cases, the
defendants assert that such authority “supports [the defendants’
expert’s] opinions and repudiates . . . Garland’s.” Brief for
appellees at 21. This is, at the very least, a tacit concession that
an issue of fact regarding the standard of care exists because of
differing expert opinions.
Next, the defendants cite to a series of cases, nine in number, which they assert address the applicable law regarding
the duty of “secondary counsel.” Id. at 22. Initially, we must
take issue with the designation of the defendants as “secondary counsel,” given that they indisputably were solely responsible for the defense of B&F in the Nesler case. Admittedly,
Holbrook wanted to avoid having Kirby communicate with
Steve and Cathy, the corporation’s owners, officers, and directors—but that hardly makes them “secondary counsel.” Rather,
Holbrook’s directions regarding communication that Kirby
assiduously followed, when viewed in the light most favorable
to the plaintiffs, lends support to Steve’s claim advanced in
his affidavit that Kirby acted in concert with Jacobsen Orr to
“cover up” the latter’s negligence.
Like the defendants’ counsel, we do not dissect each of
the nine cited cases, but we find it useful to discuss the first
cited case, Macawber Engineering, Inc. v. Robson & Miller,
47 F.3d 253 (8th Cir. 1995), because it seems emblematic of
what “secondary counsel” or “local counsel” really is and does.
Macawber Engineering, Inc. (Macawber), appealed a district
court order granting summary judgment in favor of Abdo &
Abdo, P.A. (Abdo), and Steven R. Hedges, a member of that
law firm. Macawber contended that Abdo and Hedges committed legal malpractice while acting as Macawber’s local defense
counsel because they failed to respond to certain requests for
admissions which resulted in a $650,000 judgment against
Macawber. The Macawber Engineering, Inc. court said that
because there was no evidence that local counsel had a duty to
respond to the requests for admissions, the summary judgment
was affirmed.
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The Macawber Engineering, Inc. court outlined the basic
elements of proof in a legal malpractice claim, no different
from those applicable here. Then the court turned to the matter of the attorney-client relationship and corresponding duties.
The Macawber Engineering, Inc. court said:
Where, as here, the alleged negligence or breach involves
a failure to act, there can be no negligence or breach
absent a duty to act. An attorney’s duty to act arises from
the attorney-client relationship. Therefore, the extent
of this duty necessarily depends on the scope of the
a
ttorney-client relationship. See Ronald E. Mallen &
Jeffrey M. Smith, Legal Malpractice § 8.2 (1989). In
other words, an attorney’s duty is defined and limited by
the scope of the overall attorney-client relationship.
47 F.3d at 256. The Macawber Engineering, Inc. court then
found that the terms of the representation agreement and
the nature of the legal advice sought and received define the
scope of the relationship. Using this basic rule, the Eighth
Circuit reasoned:
In this case, the undisputed evidence indicates that
the scope of the attorney-client relationship between
Macawber and Abdo was limited. Macawber’s retention
letter to Hedges provides, “[W]e confirm our appointment
of your firm as our local counsel in support of litigating
attorneys, Robson & Miller, in the above stated case.” . . .
In his deposition, Macawber’s CEO testified that he relied
on Robson & Miller to handle the Red Rock litigation and
to direct the activities of local counsel. . . . By affidavit,
Morton Robson and Kenneth Miller testified that Abdo’s
role was limited and that Abdo’s attorneys did everything
asked of them.
Id. at 256-57. The court then observed that it was undisputed
that Macawber relied on the Robson & Miller law firm to
direct Abdo’s activities in the “Red Rock litigation.” Id. at 256.
The resulting attorney-client relationship between Macawber
and Abdo was limited in scope and did not encompass a duty
to monitor the discovery process and ensure responses to the
requests for admissions. The unanswered requests for admissions were served on Robson & Miller, not Hedges, and the
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evidence was that Hedges had no duty to either answer the
requests or insure that Macawber’s litigators did so in their
limited capacity as local counsel. Thus, the summary judgment
in favor of Abdo and Hedges was affirmed.
[5] Here, the question presented by Garland’s opinions is
whether Kirby was required by the standard of care to bypass
the limited line of communication set forth by Jacobsen Orr’s
“terms of engagement” and contact Steve and Cathy directly.
It is generally accepted that a lawyer who represents a business entity owes his or her allegiance to the entity, not to an
individual shareholder. See, e.g., Bauermeister v. McReynolds,
253 Neb. 554, 571 N.W.2d 79 (1997), citing Canon 5, EC 5-18,
of the Code of Professional Responsibility. A lawyer’s duty is
to his or her client and does not extend to third parties absent
some facts which establish a duty. Gravel v. Schmidt, 247 Neb.
404, 527 N.W.2d 199 (1995); Earth Science Labs. v. Adkins &
Wondra, P.C., 246 Neb. 798, 523 N.W.2d 254 (1994).
We can find only one Nebraska case discussing what we
have here, a lawyer representing a very closely held corporation. In Detter v. Schreiber, 259 Neb. 381, 610 N.W.2d
13 (2000), it was held that an attorney who had done legal
work for a closely held corporation regarding a lease and
shareholder agreement had a conflict of interest which prevented him from representing a defendant-shareholder in an
action against the other shareholder. Obviously, the facts of
Detter are distinguishable from our situation, but the case is
still instructive.
[6] The Detter opinion cites In Re Brownstein, 288 Or. 83,
87, 602 P.2d 655, 656 (1979), in which the Oregon court said
that for purposes of potential conflicts of interest involving
small, closely held corporations, the rights of the individual
stockholders who controlled the corporation and those of the
corporation itself were “virtually identical and inseparable.”
In Re Brownstein, at its core, is simply practical recognition
of the fact that a corporation can act only through people—its
directors, officers, and shareholders. In the instance of closely
held corporations, it seems clear that the financial well-being
of the directors, officers, and owners of the corporation is usually inseparable from the interests and fate of the corporation.
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And, we suggest that the more closely held the corporation, the
less separable the directors, officers, and owners are from the
corporation. Here, there is substantial evidence that the interests and fates of Steve and Cathy are indistinguishable from
those of B&F. This is of course the implicit, if not explicit,
premise of Garland’s opinions that Kirby was required by the
standard of care to communicate what he knew, or should have
known, to Steve and Cathy about the fact that Jacobsen Orr
was the drafter of the defective documents and about the fact
that Jacobsen Orr could be brought into the Nesler lawsuit as a
responsible third party.
[7] The In Re Brownstein court reasoned that the conflict
of interest could be avoided if there was “a clear understanding with the corporate owners that the attorney represent[ed]
solely the corporation and not their individual interests.” 288
Or. at 87, 602 P.2d at 657. The same would be true here, except
that there is no evidence showing a clear understanding on
the part of Steve and Cathy that Kirby’s representation was
solely of B&F to the exclusion of Steve and Cathy’s personal
interests as the directors, officers, and owners of B&F. In fact,
the evidence is to the contrary. Steve asserts in his affidavit
that he and Cathy “were never told of an agreement between
Kirby and Holbrook that all communication had to go through
Holbrook” and that he and Cathy “would not [have] agree[d]
to that arrangement.” He also asserts in his affidavit that he
and Cathy never received Kirby’s critique and were never told
of the threat to their franchise business posed by the FTC for
noncompliance with the disclosure statement requirements.
Consequently, we return to the question of Kirby’s duty to
Steve and Cathy individually. In doing so, we assume the
absence of an attorney-client relationship between Kirby as
counsel and Steve and Cathy as individuals.
The Nebraska Supreme Court undertook an exhaustive analysis of when an attorney has a duty to third parties with whom
there is no attorney-client relationship in Perez v. Stern, 279
Neb. 187, 777 N.W.2d 545 (2010). The factual background of
Perez was that attorney Sandra Stern was negligent in letting
the underlying wrongful death action be dismissed for failure
of service, causing it to be time barred. Three years later, a
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legal malpractice claim was filed against Stern on behalf of the
decedent’s children and their mother, but such was dismissed
by the district court because it too was time barred by the
statute of limitations. On appeal of that dismissal, the Supreme
Court framed the issue as
whether Stern owed an independent duty to the children,
as [the decedent’s] statutory beneficiaries, to exercise
reasonable care in prosecuting the underlying wrongful
death claim, permitting the children to bring individual
malpractice claims for which the statute of limitations
had been tolled because of their minority. For the reasons that follow, we conclude that Stern owed a duty
to the children and reverse the court’s judgment against
their claims.
Id. at 188, 777 N.W.2d at 548.
[8-11] The Perez court set forth the children’s burden of
proof in a legal malpractice case, the elements of which are the
same basic elements applicable in the present case: to prove (1)
Stern’s employment, (2) that Stern neglected a reasonable duty
to the children, and (3) that such negligence was the proximate
cause of damages. The court found that the first and third elements were present and thus focused on duty, even though
there was no attorney-client relationship between the children
and Stern. The court then said it has never been held that “privity” is an absolute requirement for a legal malpractice claim;
rather, “we have said that a lawyer’s duty to use reasonable
care and skill in the discharge of his or her duties ordinarily
does not extend to third parties, absent facts establishing a duty
to them.” Id. at 192, 777 N.W.2d at 550 (emphasis in original).
The court then for the first time in Nebraska case law set forth
the specific standards to guide the determination of whether
such a duty to a third party exists, and we quote:
The substantial majority of courts to have considered
that question have adopted a common set of cohesive
principles for evaluating an attorney’s duty of care to a
third party, founded upon balancing the following factors: (1) the extent to which the transaction was intended
to affect the third party, (2) the foreseeability of harm,
(3) the degree of certainty that the third party suffered
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injury, (4) the closeness of the connection between the
attorney’s conduct and the injury suffered, (5) the policy
of preventing future harm, and (6) whether recognition
of liability under the circumstances would impose an
undue burden on the profession. And courts have repeatedly emphasized that the starting point for analyzing an
attorney’s duty to a third party is determining whether the
third party was a direct and intended beneficiary of the
attorney’s services.
Perez v. Stern, 279 Neb. 187, 192-93, 777 N.W.2d 545, 55051 (2010).
The Perez court explicitly adopted the foregoing as the appropriate analytical framework for determining whether counsel
owes a duty to a third party. We note that this approach has
been referenced as the “California formulation.” See 1 Ronald
E. Mallen & Jeffrey M. Smith, Legal Malpractice § 7:8 at 792
(2011). Mallen and Smith further state, “The modern trend in
the United States is to recognize the existence of a duty beyond
the confines of those in privity to the attorney-client contract.
Whatever the legal theory, however, there must be a duty of
care owed by the attorney to the plaintiff.” Id. at 791.
The Perez court wrapped up its discussion by noting that
the principles we have detailed above provide guidance to
determine whether the facts establish a duty to the third party
and to evaluate the scope of that duty. The court then found
that “the facts establish[ed] an independent legal duty from
Stern to [the decedent’s] statutory beneficiaries[, the third
parties].” 279 Neb. at 192, 777 N.W.2d at 550. The Perez
court reasoned:
Under [Nebraska’s wrongful death statutes], the only possible purpose of an attorney-client agreement to pursue
claims for wrongful death is to benefit those persons specifically designated as statutory beneficiaries. The very
nature of a wrongful death action is such that a term is
implied, in every agreement between an attorney and
a personal representative, that the agreement is formed
with the intent to benefit the statutory beneficiaries of
the action.
279 Neb. at 197-98, 777 N.W.2d at 554.
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[12-15] Furthermore, we recall that the determination of
the existence of a duty and the identification of the applicable
standard of care are questions of law, but whether there was a
deviation from the standard of care, meaning that a party was
negligent, is a question of fact. See Wilke v. Woodhouse Ford,
278 Neb. 800, 774 N.W.2d 370 (2009). The fact finder must
determine what conduct the standard of care requires under
the circumstances as presented by the evidence, or as the fact
finder determines the factual circumstances to be. Id. How the
fact finder determines whether the attorney’s conduct met the
standard of care was discussed in Bellino v. McGrath North,
274 Neb. 130, 147-48, 738 N.W.2d 434, 448 (2007) (citations omitted):
To determine how the attorney should have acted in
a given case, the jury will often need expert testimony
describing what law was applicable to the client’s situa
tion. A “‘“jury cannot rationally apply a general statement of the standard of care unless it is aware”’ of what
the common attorney would have done in similar circumstances.” . . . Testimony about the relevant law is often
essential to assist the jury in determining what knowledge
is commonly possessed by lawyers acting in similar circumstances and whether the attorney exercised common
skill and diligence in ascertaining the legal options available to his or her client. Attorneys represent their clients
in legal matters; thus, in an action for professional negligence, the law is ingrained in the canvas upon which the
picture of the attorney-client relationship is painted for
the jury.
Applying the factors from Perez v. Stern, 279 Neb. 187, 777
N.W.2d 545 (2010), to the present case, we begin with the
extent to which the transaction, i.e., the defense of B&F, was
intended to affect the third parties. Obviously, in the case of
this closely held corporation, whatever affected the corporation affected Steve and Cathy in a direct and substantial way.
Second, the foreseeability of harm clearly weighs in favor of
finding a duty to the third parties for the same reasons just
articulated. Third, the degree of certainty that the third parties
suffered injury likewise favors finding a duty to Steve and
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Cathy, as the Nesler suit was the beginning of events which
sounded the financial death knell for B&F and resulted in the
destruction of Steve and Cathy’s personal financial position
given that other franchisees who also received the defective disclosure statements would be able to assert the same
remedies as Nesler. The fourth consideration from Perez, the
closeness of the connection between the attorney’s conduct
and the injury suffered, is apparent given Kirby’s failure to
advise B&F, which could be done only via Steve and Cathy,
that they should not continue to be represented or advised by
the lawyers who drafted the defective franchising documents
because of those lawyers’ obvious conflict of interest. Fifth,
we assess the policy of preventing future harm. In this regard,
finding that a duty existed as to the third parties may prevent
future harm if extremely closely held corporations are viewed,
from the corporation’s counsel’s standpoint, as inseparable
from the small number of people who actually stand behind
the corporation, because they are the people who stand to lose
the most from negligent representation of the corporate entity.
The sixth and final consideration under Perez is whether an
undue burden is imposed on the profession. We find that it
is not, because attorneys should have no trouble appreciating that (1) doing legal work for an extremely closely held
corporation more than likely will substantially impact the
few people behind the corporation and (2) generally, while
people form such corporations for protection from personal
liability, the fact of the matter is that their personal assets
will typically be pledged and at risk—as is true here; lawyers
can protect themselves and their clients’ interests by express
agreements as to the scope of the representation agreed to by
the client.
Finally, we recall what the court in Perez v. Stern, 279 Neb.
187, 193, 777 N.W.2d 545, 551 (2010), recognized as the
overarching consideration: “[T]he starting point for analyzing an attorney’s duty to a third party is determining whether
the third party was a direct and intended beneficiary of the
attorney’s services.” In Perez, the court recognized that the
purpose of bringing the wrongful death action was to benefit
the decedent’s statutory beneficiaries, and thus, even though
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Stern’s client was the personal representative, the decedent’s
children were found to be third parties to whom counsel owed
a duty. Here, given the closely held nature of B&F, protection
via legal representation of B&F is, for all intents and purposes,
protection of Steve and Cathy; therefore, they would obviously
be intended beneficiaries of Kirby’s representation.
Therefore, in conclusion, while Steve and Cathy may not
have a direct attorney-client relationship with the defendants,
they were, as a matter of law, third parties to whom the
defendants owed the duty of exercising such skill, diligence,
and knowledge as that commonly possessed by attorneys
acting in similar circumstances. See, Perez, supra; Baker v.
Fabian, Thielen & Thielen, 254 Neb. 697, 578 N.W.2d 446
(1998). Although this general standard is established by law,
the questions of what an attorney’s specific conduct should
be in a particular case and whether an attorney’s conduct
falls below that specific standard are questions of fact for
the jury. See, Wilke v. Woodhouse Ford, 278 Neb. 800, 774
N.W.2d 370 (2009); McVaney v. Baird, Holm, McEachen,
237 Neb. 451, 466 N.W.2d 499 (1991). The fact finder must
determine what conduct the standard of care requires under
the circumstances as presented by the evidence, or as the fact
finder determines the factual circumstances to be. Id. How
the fact finder determines whether the attorney’s conduct
met the standard of care was discussed in Bellino v. McGrath
North, 274 Neb. 130, 147-48, 738 N.W.2d 434, 448 (2007)
(citations omitted):
To determine how the attorney should have acted in
a given case, the jury will often need expert testimony
describing what law was applicable to the client’s situa
tion. A “‘“jury cannot rationally apply a general statement of the standard of care unless it is aware”’ of what
the common attorney would have done in similar circumstances.” . . . Testimony about the relevant law is often
essential to assist the jury in determining what knowledge
is commonly possessed by lawyers acting in similar circumstances and whether the attorney exercised common
skill and diligence in ascertaining the legal options available to his or her client. Attorneys represent their clients
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in legal matters; thus, in an action for professional negligence, the law is ingrained in the canvas upon which the
picture of the attorney-client relationship is painted for
the jury.
Thus, given the dispute in the evidence as to whether the
representation the defendants provided to B&F—which directly
impacted Steve and Cathy, the third parties—met the standard
of care, there is clearly a genuine issue of material fact for
trial. Therefore, the district court erred in granting summary
judgment to the defendants on the claims of legal malpractice
asserted personally by Steve and Cathy.
Evidence of Damage From Negligence
of the Defendants.
Garland opined that based on the testimony of the franchise
attorney contacted by Holbrook—which attorney, we note,
ultimately replaced Jacobsen Orr and began representing B&F
and Steve and Cathy—fines could be levied at $11,000 by the
FTC per disclosure statement violation. Garland’s deposition
testimony was that he had counted 42 violations for a total
of $462,000 in potential fines; he said that such fines would
clearly not do anything “positive [for] the business” and that he
thought that if Steve and Cathy faced such fines, they “would
have seen [the business,] if not implode, be crippled to the
point of maybe no return.” As it turned out, both the FTC and
the Nebraska Department of Banking took action against B&F
because of the defective disclosure statements, which effectively meant the death of B&F.
The record, when viewed most favorably to B&F and Steve
and Cathy, shows that a cascading series of events, all related
to the defective franchising documents, combined to ruin
what had started as a successful franchising business. These
events conspired to expose B&F, as well as Steve and Cathy,
to a variety of adverse legal actions, including repayment of
franchise fees, attorney fees, and damages, as well as their
own increased legal costs. Actions were instituted by Nesler,
by Turnbull via the counterclaim, by the FTC, and by the
Nebraska Department of Banking. These legal proceedings,
including the fact that the Colorado franchisee, Turnbull, had
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obtained a judgment in excess of $130,000 against B&F for
franchise disclosure statement violations, would have to be
part of any future compliant disclosure statement if B&F
were to try to continue its franchising business. As Garland
suggested, such could hardly have a positive effect on B&F’s
future prospects.
And, there is evidence in the record that at least some franchisees would have been willing to “exchange” their defective
documents for compliant documents so that they could continue in business. Doing so would require compliant disclosure
statements, which B&F never produced, at least while represented by Jacobsen Orr. Moreover, part of B&F’s projected
revenue stream would have come from the goods and services
the franchisees would acquire from B&F, again providing some
evidence of proximately caused damages. The defective documents exposed the plaintiffs to the requirement that they offer
refunds of all franchise fees paid to B&F when each franchisee
had been given the defective disclosure statements prior to
the purchase of a franchise. Steve’s affidavit recites that seven
franchises were sold using the third-edition disclosure statement Orr drafted using Kirby’s critique, but the evidence is that
the third edition was not compliant with applicable law either.
Additionally, there is evidence that the confession of judgment in the Nesler litigation destroyed Steve and Cathy’s ability to secure additional bank financing because Nesler began
attachment proceedings in April 2006, and such financing was
needed to keep B&F operating.
In conclusion, there is evidence of a wide variety of damages sustained by B&F, as well as by Steve and Cathy personally. While some of the damages might be solely the consequence of Jacobsen Orr’s negligence, there is evidence that
some of those damages could have been avoided or mitigated
by Kirby’s adherence to the standard of care, as articulated by
Garland. Although the defendants’ experts express a differing
view of the standard of care, that simply means that there were
genuine issues of material fact that could not be resolved by
summary judgment. Consequently, we find that the trial court
erred in granting summary judgment to the defendants on Steve
and Cathy’s claims.
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Was Summary Judgment Properly Entered
as to Other Named Plaintiffs?
Barista’s Company, Inc., a Nebraska corporation, was also
named as a plaintiff, as were W.E. Corporation and CupO-Coa, whose functions we described earlier. There is no
evidence that these three entities had any attorney-client relationship with the defendants or that they would be third parties under the authority we have earlier discussed in detail, at
least on the record before us. Thus, the district court properly
entered summary judgment in favor of the defendants as to
these three plaintiffs, and to this extent, we affirm the decision
of the district court.
Did District Court Correctly Deny Plaintiffs’
Motion for Summary Judgment?
The plaintiffs assign error to the district court’s decision
denying their motion for summary judgment to be entered
finding the defendants negligent as a matter of law. Obviously,
the trial court did not err in this respect, for all of the reasons
we have discussed above as to why summary judgment in the
defendants’ favor as to B&F and Steve and Cathy was not correct. Thus, this assignment of error is without merit.
Did District Court Err in Ruling That Certain
Exhibits Were Inadmissible at Hearing on
Motions for Summary Judgment?
[16] The plaintiffs assign error to the district court’s decision excluding exhibits 69, 70, 85 through 87, and 92 from
evidence at the summary judgment hearing. We have studied
those exhibits, but have not used any of such in reaching our
decision. Therefore, it is unnecessary for us to decide this
assignment of error. See Kelly v. Kelly, 246 Neb. 55, 516
N.W.2d 612 (1994) (appellate court is not obligated to engage
in analysis which is not necessary to adjudicate case and controversy before it).
CONCLUSION
We conclude that under Perez v. Stern, 279 Neb. 187, 777
N.W.2d 545 (2010), Steve and Cathy were “third parties” to
whom the defendants owed a duty of reasonable care. When we
Decisions
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of the Nebraska Court of Appeals
19 nebraska appellate reports
view Garland’s expert testimony in the light most favorable to
Steve and Cathy, whether the defendants met that standard of
care is a genuine issue of material fact for trial. Accordingly,
the trial court erred in granting summary judgment to the
defendants on Steve and Cathy’s individual claims. Thus, we
reverse the decision of the district court and remand such cause
to the district court for further proceedings.
With respect to the plaintiff B&F, such corporation was
indisputably a client of the defendants. There is evidence, when
viewed most favorable to B&F, that the defendants breached
the standard of care with respect to both the critique of the
disclosure statement and the defense of B&F in the Nesler
lawsuit. While the defendants offer opposing testimony from
experts that there was no breach of the standard of care, resolution of that question is for the jury and is not to be decided
on a motion for summary judgment. Accordingly, there is a
genuine issue of material fact as to B&F’s legal malpractice
claims against the defendants. Thus, we reverse the grant of
summary judgment to the defendants as to B&F’s claims and
remand the cause for further proceedings.
We find that there is no evidence that Barista’s Company,
W.E. Corporation, and Cup-O-Coa had an attorney-client relationship with the defendants; nor does the record before us
contain evidence that these corporations would be third parties
that were owed a duty of reasonable care by the defendants.
Therefore, we affirm the grant of summary judgment in the
defendants’ favor as to these three plaintiffs.
Affirmed in part, and in part reversed and
remanded for further proceedings.
James P etersen, appellant, v.
Nebraska Department of Health and
Human Services et al., appellees.
___ N.W.2d ___
Filed November 8, 2011. No. A-10-975.
1. Administrative Law: Judgments: Appeal and Error. A judgment or final order
rendered by a district court in a judicial review pursuant to the Administrative
