F. Daniel Harrelson v. B. Michael Easley

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

JOHN B. ROBBINS, CHIEF JUDGE

DIVISION I

F. DANIEL HARRELSON

APPELLANT

V.

B. MICHAEL EASLEY

APPELLEE

CA 00-490

DECEMBER 13, 2000

APPEAL FROM THE ST. FRANCIS

COUNTY CHANCERY COURT

[NO. E99-2]

HONORABLE KATHLEEN BELL,

CHANCELLOR JUDGE

REVERSED AND DISMISSED

Appellant Daniel Harrelson appeals from an order of the St. Francis County Chancery Court imposing sanctions on him for violating Ark. R. Civ. P. 11. We agree that sanctions were improper and therefore reverse and dismiss.

Appellant and appellee are both practicing attorneys of long-standing. Each has performed legal services for Helen and Benjamin Bowers, an elderly brother and sister who, at the time this litigation took place, were living in a nursing home. Appellee's representation, so far as it is pertinent to this case, began in 1988, when he drafted a document entitled Living Trust For The Benefit Of Benjamin Wilson Bowers and Helen Bowers. The document provided that Helen Bowers would be the trustee of the trust and that, upon her

death, appellee would become co-trustee along with First National Bank of Eastern Arkansas. In 1989, Ms. Bowers approached appellee with the suggestion that he draft the trust in such a way as to make him its sole beneficiary. Appellee, who had developed a close personal relationship with the Bowerses, refused. When Ms. Bowers persisted, he sent her to another attorney. That attorney drafted the trust so that appellee would receive fifty-percent of the Bowerses' estate upon their deaths. He also deleted First National Bank as successor co-trustee. The execution of the trust was videotaped at appellee's request.

Approximately nine years later, on or about November 30, 1998, appellant was visited in his office by a woman named June Ruffin, whom he had known since 1991. Ruffin informed appellant that two persons known to her, Helen and Benjamin Bowers, were aged and in a nursing home and wanted to revise a will and a trust. Ruffin carried with her the following handwritten letter:

We, Helen Bowers and Ben W. Bowers hereby authorize changes in our estate. We authorize papers to be drawn up for these changes. We would like S.A. Montgomery [address listed] to have power of attorney and to be trustee of the Bowers Family Trust. We have authorized these changes Nov. 28, 1998.

The letter had what purported to be the signatures of Helen and Benjamin Bowers, even though appellant recognized that it had been written by someone other than the Bowerses. Appellant inquired of Ruffin as to the Bowerses' mental capacities and was apparently told that they were competent. He was also told that Benjamin Bowers was blind and terminally ill.

On the same day he met with Ruffin, appellant sent a letter to appellee, who had beenacting as trustee of the trust since the Bowerses' admission to the nursing home. Appellant asked appellee to forward all pertinent documents so that he could make the changes requested by the Bowerses. Shortly thereafter, appellant sent a letter to Helen Bowers informing her that he had requested the relevant documents from appellee. In it, he told her that, if appellee cooperated, the fee for the changes would be $350 to $500 and that, if appellee did not cooperate, the fee would be higher. He asked Ms. Bowers to sign the letter and return it to him if she wished to engage his services, which she did. Benjamin Bowers did not participate in these communications.

On the same day he wrote to Ms. Bowers, appellant also sent a letter to Dr. Frank Schwartz, Helen Bowers's treating physician. Appellant asked Dr. Schwartz to provide a written evaluation of Ms. Bowers's physical and mental condition and specifically asked the doctor for "an opinion as to her capacity."

On December 9, 1998, appellant received a reply from appellee rejecting his request to see the Bowerses' documents. Appellant immediately sent another letter to appellee and told him that if he did not supply the requested information, appellant would seek his removal as trustee. On December 12, 1998, appellant spoke with Helen Bowers for the first time in a short telephone call. A follow-up letter indicates that they talked about appellee's refusal to transmit the trust documents and the possibility that a suit could be filed against appellee. On December 14, 1998, appellee responded to appellant's second request by again refusing to transmit the documents. He stated that Helen and Ben Bowers were in a vulnerable and weakened condition and that the situation appeared suspicious and not in theBowerses' best interests.

On December 15, 1998, Dr. Schwartz replied to appellant's request for an opinion regarding Ms. Bowers's condition. In his letter, he made the following statements:

It became evident [in early October] that [Ms. Bowers] had also developed some confusion. The causes of the confusion included her depression, the pain medications and possibly an underlying dementia. She was no longer able physically or mentally to care for herself and her brother and they were admitted into the nursing home in late October.

I doubt that she has been competent to manage her own affairs since sometime before her admission to the nursing home. At this point I am not entirely sure that this is all due to depression and the pain medications but it may also reflect a degree of underlying dementia.... I am not able to tell you whether or not she will ever be able to live independently at home. I very [sic] doubt that she will be able to manage with her brother at home. It is conceivable that she may improve enough to go home on her own.

At about the time appellant received Dr. Schwartz's letter, he drafted a petition on behalf of Helen and Benjamin Bowers seeking an accounting and seeking appellee's removal as trustee. He forwarded the petition to Ms. Bowers along with a letter, asking her to sign the petition if she agreed with it. He also stated the following:

I am also enclosing a copy of Dr. Schwartz's letter of December 15, expressing his opinion of your medical and mental conditions at this time. As you can see, he does not presently believe that you are competent to manage your own affairs. Since he may be called on to testify in Court, you may want to discuss this directly with him, and if he persists in his opinion, it will be necessary for us to get another doctor's opinion of your condition. Otherwise, Mr. Easley might be able to successfully claim that you cannot legally change your Trust or manage your personal and business affairs.

In my dealings with you, you have always sounded very competent and able to deal for yourself, but I cannot testify as your attorney.

Near the same time appellant drafted this letter to Ms. Bowers, he spoke to her on thephone again. The two of them called appellee to request the trust documents, but appellee abruptly terminated the call. On December 22, appellant sent another letter to Ms. Bowers telling her that appellee:

is very suspicious that Mr. Montgomery, Mr. Floyd and June Ruffin are unduly influencing you to take this action. You have told me over the phone that this is definitely not the case, and I am relying on your word and on my belief in the others' good intentions. Any time you feel that anyone is pressuring you in any way, I want you to let me know immediately, as it is not my intention to do anything you do not want to do.

On January 4, 1999, having received the signed petition back from Ms. Bowers, appellant filed suit against appellee in chancery court. The complaint declared that Helen and Benjamin Bowers were the grantors of a trust believed to have been created in 1989 and that a separate power of attorney was believed to have been executed by one or both of them in 1993. It was alleged, inter alia, that appellee had breached his fiduciary duty by improperly naming himself as trustee in the trust document and by refusing to furnish the Bowerses with the documents related to the trust. Appellee responded by moving to dismiss the complaint on the ground that the Bowerses did not have the capacity to initiate or pursue litigation.

In a separate proceeding on February 20, 1999, both Helen and Benjamin Bowers were declared incompetent. Guardians of their persons and estates were subsequently appointed. Appellee began efforts to convince appellant to dismiss the chancery court petition. He forwarded a copy of the videotape of Helen Bowers executing the 1989 trust to show that he had no part in drafting it. He also told appellant that a motion for sanctionswould be filed if the petition was not dismissed. When the petition was not dismissed, appellee filed the motion on April 5, 1999, pursuant to Ark. R. Civ. P. 11. Following a hearing during which appellant and appellee testified, the chancellor found that sanctions should be imposed against appellant. The basis of her ruling was twofold: one, that appellant should not have filed the petition without making further inquiry regarding the Bowerses' mental capacities; and two, that paragraphs three and nine of the petition were not accurate and appellant should have re-examined them and withdrawn them. Paragraph three of the complaint alleged:

[Appellee], an attorney practicing in St. Francis County, drafted the Trust and the Power of Attorney or caused them to be drafted naming himself as Trustee of the [Bowerses'] business affairs and attorney-in-fact for [them]. Such actions constitute a conflict of interest and are a violation of [appellee's] duty to [them] as their attorney at the time.

Paragraph nine of the complaint alleged:

Plaintiffs believe the actions of [appellee] are unlawful and in gross violation of the fiduciary duties owed to Plaintiffs by [appellee], as Trustee of the Trust and attorney-in-fact under the Power of Attorney.

Appellee requested that appellant be sanctioned by paying the cost of his attorney fees ($13,225.50), the administrative costs incurred by the guardian of the Bowerses' persons ($7,125), the administrative costs incurred by the guardian of the Bowerses' estates ($3,550), and his own lost income ($18,177). The chancellor awarded $13,000 in attorney fees but refused to make an award for the other costs. Appellant appeals from the imposition of sanctions and from the amount awarded against him. Appellee cross-appeals from the chancellor's refusal to make an award for the other costs.

Rule 11(a) of the Arkansas Rules of Civil Procedure provides in pertinent part:

The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.... If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney's fee.

The imposition of sanctions pursuant to Rule 11 is a serious matter to be handled with circumspection. Ver Weire v. Arkansas Dep't of Human Servs., 71 Ark. App. 11, 26 S.W.3d 132 (2000). We review a trial court's determination of whether a violation of Rule 11 occurred under an abuse-of-discretion standard. Id. Consequently, the trial court's decision is due substantial deference. See id. The moving party has the burden of proving a Rule 11 violation. Hodges v. Cannon, 68 Ark. App. 170, 5 S.W.3d 89 (1999).

We address first the chancellor's finding that appellant violated Rule 11 by failing to resolve the issue of the Bowerses' mental capacity prior to filing litigation on their behalf. Appellant testified that, at the time he filed the petition against appellee, he believed the Bowerses to be competent based upon his phone conversations with Helen Bowers, the "ambiguous" language of Dr. Schwartz's letter, information provided by June Ruffin, and the fact that appellee had said nothing to indicate the Bowerses were mentally incompetent. The chancellor found that appellant's conduct merited sanctions, however, based on thefollowing factors: 1) the December 15 letter from Dr. Schwartz in which the doctor expressed his opinion that Ms. Bowers had not been competent to manage her own affairs for some time prior to her admission to the nursing home; 2) appellant's statement in his December 18 letter to Ms. Bowers that Dr. Schwartz considered her unable to manage her own affairs; 3) appellant's failure to speak with any of Ms. Bowers's other medical providers or seek a second opinion as to her competency; 4) appellant's failure to speak with Benjamin Bowers at all, and the fact that he spoke with Ms. Bowers for no longer than fifteen minutes; and 5) appellant's reliance on the opinion of June Ruffin regarding Ms. Bowers's competency when he knew that Ruffin had no training in assessing medical conditions. The chancellor also gave consideration to two matters that occurred after appellant filed the petition: 1) Dr. Schwartz's January 19, 1999, deposition in which, according to the chancellor, he was "unequivocal in his statement that the Bowers [sic] were not competent"; and 2) the fact that on February 20, 1999, the Bowerses were adjudged incompetent.

Two of appellant's assignments of error concern the chancellor's consideration of Dr. Schwartz's deposition testimony and her consideration of the Bowerses' incompetency adjudication. He argues that his liability for sanctions should be determined based upon what he reasonably believed at the time he filed the January 4 pleading, not on events that took place afterward. He also contends that consideration of the Schwartz deposition was improper because the text of the deposition was not admitted into evidence. We do not address these arguments because, even if credence is given to these items of evidence, appellant's conduct on this matter did not merit the imposition of sanctions.

To avoid sanctions, a lawyer is required to make reasonable inquiry to determine that the allegations of a pleading are well-grounded in fact. See Hodges v. Cannon, supra. We are unable to discern if the "fact" at issue in this case is the Bowerses' mental capacity to file a pleading or their testamentary capacity for the purpose of changing their trustee. If it is their capacity to file a pleading, we have found no law, and appellee has cited none, that stands for the proposition that an attorney who files a pleading attests that his or her client is mentally competent.1 If the issue is the Bowerses' testamentary capacity, that is not something that can ordinarily be characterized as a fact without resort to judicial process. Testimony about mental competency or ability is an expression of opinion, and it does not establish any material fact as a matter of law. See generally Estate of Riggins, 937 S.W.2d 11 (Tex. App. 1996). Further, it is presumed that the maker of a trust, for example, has sufficient testamentary capacity. See Rose v. Dunn, 284 Ark. 42, 679 S.W.2d 180 (1984). Additionally, even if a person has a mental impairment, he may possess testamentary capacity during a lucid interval. See Noland v. Noland, 330 Ark. 660, 956 S.W.2d 173 (1997). Thus, without prior judicial adjudication, a client's mental competence, or lack thereof, can seldom be considered a fact to be confirmed by an attorney's signature on a pleading, although lack of capacity may be a valid defense to the action filed.

We particularly note that, in this case, there were varying opinions as to the Bowerses' competency. Appellant's opinion, based upon his own observations and theinformation relayed to him by June Ruffin, was that he was dealing with clients who were competent to change the trustee of their trust. Dr. Schwartz's opinion, despite appellant's characterization of it as ambiguous, was to the contrary. However, appellant should not be sanctioned for failing to procure a second medical opinion or for relying on the observations of himself and June Ruffin. Lay persons may express an opinion as to testamentary capacity. See generally Schirmer v. Baldwin, 182 Ark. 581, 32 S.W.2d 162 (1930). Further, appellee, in his dealings with appellant prior to January 4, did not broach the issue of the Bowerses' competence. Although he certainly was not required to and his desire to protect the Bowerses' privacy was understandable, the fact remains that appellant was not privy to the information possessed by appellee. Finally, the fact that the Bowerses were ultimately adjudged incompetent does not change our view of this case. The practice of law is not an exact science, and a lawyer is not required, under Rule 11, to anticipate with precision how the evidence will be perceived. See Hodges v. Cannon, supra. The trial court is expected to avoid using the wisdom of hindsight and should test the lawyer's conduct by inquiring what was reasonable to believe at the time the pleading was submitted. Id.

We are disturbed by the fact that appellant did not do more to try and communicate with Benjamin Bowers and ascertain his mental capacity. However, this omission falls under the heading of negligence or inadequate preparation, and is not generally sanctionable under Rule 11. See id; see also Ver Wiere v. Arkansas Department of Human Services, supra, where sanctions were not warranted even though the attorney failed to order a transcript of a hearing to determine a precise basis for his motion to recuse.

As to the chancellor's findings regarding appellant's failure to withdraw paragraphs three and nine of the complaint, we likewise hold that sanctions were not merited. Paragraph three of the complaint states, correctly, that appellee drafted a trust in which he was named as successor trustee. Although the complaint referred to the 1989 trust, it was actually the 1988 trust where this occurred. This insignificant error regarding the date should not be the basis for Rule 11 sanctions. As for paragraph nine, it expresses the conclusion that appellee, by withholding documents from the Bowerses and by drafting the trust to name himself as trustee, violated his fiduciary duty. It has not been shown by appellee that "it is patently clear that [the Bowerses'] claim [has] no chance of success." See Hodges v. Cannon, supra. A trustee owes a fiduciary duty to a beneficiary of a trust, as does an attorney-at-law or an attorney-in-fact. See Dent v. Wright, 322 Ark. 256, 909 S.W.2d 302 (1995); Sikes v. Segers, 266 Ark. 654, 587 S.W.2d 554 (1979); and Alexander v. Alexander, 262 Ark. 612, 561 S.W.2d 59 (1978). While the Bowerses may not ultimately prevail on the suit filed by appellant, the trial court should not confuse the existence of a good defense with a basis for imposing Rule 11 sanctions.

Based upon the forgoing, we hold that the chancellor abused her discretion in imposing Rule 11 sanctions in this case. This holding renders appellant's remaining arguments and appellee's cross-appeal moot.

Reversed and dismissed.

Hart and Neal, JJ., agree.

1 Arkansas Rule of Civil Procedure 17(b) states that an incompetent person without a guardian may file a suit through his next friend or a guardian ad litem.