KUHLMAN ELECTRIC CORPORATION V. STEPHEN R. CHAPPELL
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2006-SC-000140-DG
STEPHEN R. CHAPPELL, INDIVIDUALLY
AND AS PARTNERS AND/OR EMPLOYEES
OF LANDRUM 8v SHOUSE, A KENTUCKY
GENERAL PARTNERSHIP, ET AL.
ON REVIEW FROM COURT OF APPEALS
CASE NOS . 2003-CA-001232-MR & 2004-CA-000633-MR
FAYETTE CIRCUIT COURT NO. 01-CI-03147
V.
KUHLMAN ELECTRIC CORPORATION
AND
APPELLEE
2006-SC-000144-DG
KUHLMAN ELECTRIC CORPORATION
V.
APPELLANTS
APPELLANT
ON REVIEW FROM COURT OF APPEALS
CASE NOS. 2003-CA-001232-MR 8, 2004-CA-000633-MR
FAYETTE CIRCUIT COURT NO . 01-CI-03147
STEPHEN R. CHAPPELL, INDIVIDUALLY
AND AS PARTNERS AND/OR EMPLOYEES
OF LANDRUM & SHOUSE, A KENTUCKY
GENERAL PARTNERSHIP, ET AL.
APPELLEES
OPINION OF THE COURT BY SPECIAL JUSTICE ROGER CRITTENDEN
AFFIRMING
This is a consolidated appeal from a decision of the Court of Appeals in
an attorney/ malpractice action and an insurance company/ bad faith action
arising out of a workers compensation case . Both the successful litigant at the
trial. and appellate level, the Landrum 8s Shouse law firm, and the unsuccessful
litigant, Kuhlman Electric Corporation, petitioned this Court for discretionary
review. The Appellee insurance company, Amerisure (f/ k/ a Michigan Mutual),
did not seek discretionary review .
The trial court in these actions determined that Landrum 8s Shouse owed
no duty of care to its former client, Kuhlman Electric Corporation, in a workers
compensation case after Kuhlman became self-insured. The trial court granted
summary judgment for Landrum & Shouse and Amerisure, finding that
Landrum & Shouse did not violate the standards of care due Kuhlman Electric
as insured by Amerisure and owed no duty of care to Kuhlman Electric as a
self-insured entity. The trial court determined that Amerisure had no
contractual liability to Kuhlman Electric as self-insured and was not liable for a
claim of bad faith.
The Court of Appeals determined that summary judgment on the issue of
the attorneys' duty owed to Kuhlman Electric was inappropriate because the
Appeals Court could not conclude there was not a violation as a matter of law.
Still, the judgment of the trial court was upheld because the Court of Appeals
determined that Kuhlman Electric was unable to show damages in connection
with the violations of any duties owed to it by Landrum & Shouse. The Court
of Appeals upheld the judgment for Amerisure for the same reasons.
We affirm the decision of the Court of Appeals.
The facts of the workers' compensation case which give rise to the
instant case are detailed by the Court of Appeals in Kuhlman Electric
Corporation v . Stephen R. Chappell, et al., No. 2003-CA-001232-MR and No .
2004-CA-000633-MR (Ky . App . December 2, 2005) :
Kuhlman Electric purchased and maintained a workers'
compensation insurance policy through Amerisure covering workrelated injuries sustained by its employees during at least the
period of April 15, 1977, through October 1, 1988 . Among other
things, the insurance policy provided that Arnerisure would provide
legal representation and a defense to Kuhlman Electric against
any workers' compensation claims brought against Kuhlman
Electric arising from injuries sustained during the policy period.
On April 15, 1977, Kuhlman Electric employee, William
Burgess, suffered a work-related back injury. Burgess
subsequently filed a claim seeking workers' compensation benefits.
Amerisure retained Landrum 8s Shouse to represent Kuhlman
Electric in the ensuing workers' compensation litigation. On July
30, 1979, the Workers' Compensation Board (Board) entered an
order awarding Burgess workers' compensation benefits for the
April 15, 1977, injury.
On April 6, 1988, Burgess filed a motion to reopen his
workers' compensation claim, asserting that there had been a
worsening of his condition . Arnerisure again retained Landrum 8v
Shouse to defend Kuhlman Electric in the action . The motion to
reopen was initially granted by the Administrative Law Judge
(ALJ), but, upon appeal, that determination was reversed by this
Court.
On October 1, 1988, Kuhlman Electric terminated it workers'
compensation insurance coverage with Amerisure, and became self
- insured for workers' compensation purposes . Amerisure,
however, had a continuing obligation to Kuhlman Electric for
claims arising from events occurring within the policy period,
including the Burgess injury.
On November 14, 1991, Burgess filed a second motion to
reopen his 1977 case, and Amerisure again retained Landrum 8v
Shouse to represent Kuhlman Electric . On behalf of Kuhlman
Electric, Landrum & Shouse objected to Burgess's motion to
reopen . However, on February 26, 1992, the ALJ issued an order
granting Burgess's motion to reopen his previous workers'
compensation claim based upon a change in his condition and an
increase in his occupational disability attributable to the April 15,
1977 work-related injury.
On August 24, 1992, Landrum 8s Shouse, on behalf of
Kuhlman Electric as insured by Amerisure, filed a motion to join
Kuhlman Electric in its capacity as a self-insurer as a party to the
workers' compensation action. The motion argued that Burgess
had not, in August 1991, suffered a worsening of his 1977 injury
(which would be subject to coverage by Amerisure) but, rather, had
suffered a new injury (which, if so, would be subject to coverage by
Kuhlman Electric in its self-insured capacity) . Kuhlman Electric,
in its capacity as selfinsured, did not object to the joinder motion
at that time. On November 20, 1992, the ALJ entered an order
granting the motion to add Kuhlman Electric in its self-insured
capacity as a party to the workers' compensation action.
The case languished, and it was not until 1996 that Burgess
filed a motion alleging that a new injury, rather than a worsening
of the original 1977 injury, had occurred in August 1991 . At this
time Kuhlman Electric, as self-insured, objected to the new injury
claim based upon lack of notice and expiration of the statute of
limitations for bringing the new injury claim. These defenses were
rejected, however, based upon the ALJ's determination that
Kuhlman Electric was estopped from raising the defenses because
the company itself (in the August 24, 1992, motion filed by
Landrum 8v Shouse) had originally suggested that the August 1991
injury was a new injury rather than a worsening of the 1977
injury.
Ultimately, the ALJ determined that Burgess had incurred a
new injury, and that he had suffered no increase in occupational
disability from the 1977 injury. As a result, Kuhlman Electric, in
its self-insured capacity, was required to pay workers'
compensation benefits to Burgess. The ALJ's decision was upheld
by the Workers' Compensation Board, this Court, and the Supreme
Court.
On August 22, 2001, Kuhlman Electric filed an action in
Fayette Circuit Court against Landrum & Shouse and Amerisure.
As amended, the complaint alleged causes of action against
Landrum & Shouse based upon professional negligence, breach of
contract, negligent and intentional breach of fiduciary duties, gross
negligence, and breach of implied covenant of good faith and fair
dealing. As amended, the complaint stated causes of action
against Amerisure based upon the breach of contract, breach of
fiduciary duties, aiding and abetting Landrum 8s Shouse in its
breach of fiduciary duties, and bad faith .
On March 14, 2003, Landrum & Shouse filed a motion for
summaryjudgment . On May 12, 2003, the circuit court entered
an order granting the appellees summary judgment on all claims
against Landrum 8s Shouse. Kuhlman Electric filed a motion to
alter, amend, or vacate, which was denied by order dated June 2,
2003 . Kuhlman Electric subsequently filed its notice of appeal
from these rulings (Case No . 2003-CA-001232-MR) .
On July 8, 2003, Amerisure filed a motion for summary
judgment . On March 1, 2004, the circuit court entered an order
granting summary judgment to Amerisure . Kuhlman Electric
subsequently filed its notice of appeal from that ruling (Case No .
2004-CA-000633-MR) . By order dated June 29, 2004, this Court
ordered that Case Nos . 2003-CA-001232-MR and 2004-CA-000633
be consolidated .
The Court of Appeals rejected the argument of Landrum 8s Shouse that
Kuhlman Electric/ self-insured was a separate entity from Kuhlman Electric
Corporation. Since Kuhlman Electric was the client originally, there was a
potential conflict between the Company's interest as an insurer and that of
Amerisure. Summary judgment was granted early in this case and the record
is not extensive regarding all of the parties' communications and actions . As a
result, the Court of Appeals could not determine as a matter of law that
Landrum 8v Shouse, along with Amerisure, were entitled to judgment on the
"violation of duty" issue. The Court of Appeals then analyzed the probable
actions of alternative counsel had Landrum 8s Shouse withdrawn and
determined that the outcome of the underlying case would have been the same.
If Kuhlman was unable to show damages as a result of the actions of Landrum
8s Shouse, summary judgment was properly granted for both Landrum 8v
Shouse and Amerisure.
The parties have continued the same arguments before this Court as
they did at the trial court and the Court of Appeals. Landrum & Shouse
maintain that Kuhlman Electric/ self-insured was a separate entity to which it
owed no duty. Kuhlman Electric argues that it remained the client of Landrum
8v Shouse and the actions taken or not taken by the firm were a substantial
factor in the finding of liability on the underlying claim.
We recognize the somewhat unique factual situation involving Kuhlman
Electric as insured by Amerisure and Kuhlman Electric as self-insured for
workers' compensation purposes, and we understand that in practice when
employers switch insurance carriers in similar situations there is little chance
for a conflict of interest if a lawyer continues to represent the original carrier.
Had Kuhlman Electric chosen another carrier rather than electing to self insure
in October of 1988, Kuhlman Electric would have had little interest in the date
of injury or which carrier paid benefits. Kuhlman Electric's election to self
insure, however, did not create a new legal entity. Kuhlman Electric was the
client of Landrum 8v Shouse when insured by Amerisure and did not cease to
be the client when its interests became adverse to Amerisure.
Supreme Court Rule 3.130-1 .7(a) provides that:
A lawyer shall not represent a client if the representation of that
client will be directly adverse to another client, unless:
(1) The lawyer reasonably believes the representation will
not adversely affect the relationship with the other client; and
(2) Each client consents after consultation .
Since summary judgment was granted early in the case, the record does
not reflect extensive discovery. The information developed was not sufficient
for this Court to determine that Landrum & Shouse was entitled to summary
judgment on the legal duty issue. With the record before it this Court would
have to make an exception to the Rules of Professional Conduct for workers'
compensation cases in order to sustain the summary judgment granted at the
trial court level. We decline to do so. Instead, we agree with the Court of
Appeals that Kuhlman Electric will be unable to demonstrate damages even if it
successfully proves that Landrum & Shouse and Amerisure violated fiduciary
duties.
In the underlying case, the Workers' Compensation Board, in an Opinion
entered September 22, 1997, affirmed an Opinion and Award rendered by the
Administrative Law Judge. The Administrative Law Judge found that William
Burgess incurred a "work-related injury of a cumulative trauma nature which
manifested itself on or about August 18, 1991 ." (Dept. of Workers Claims,
Claim NO . 96-02412, Opinion and Award by James L. Kerr, Administrative Law
Judge) . The Kentucky Court of Appeals, in an unpublished Opinion rendered
June 18, 1999, upheld the decision of the Workers' Compensation Board and
adopted "the Board's opinion as follows:"
Evidence as to the increased work activity at heavier
loads by Burgess for Kuhlman was clearly not contradicted .
Medical evidence supports the fact that but for the heavier
work load during that period of time, Burgess probably would
not have been required to undergo additional back surgery or
incur the herniated disc as a result of having the two surgical
procedures. . . . [T]he medical evidence in Burgess' claim is
substantial evidence that he sustained a permanent impairment
change.
We conclude there is no compelling evidence for
reversal of the ALJ on the issue of occupational disability
based upon the cumulative trauma to Burgess during the period
1988 to 1991 at his work place. We believe there was
substantial evidence in the record for such findings. . . .
Kuhlman Corporative v. William Burgess, 1997-CA-00207-WC (Direct Appeal)
and William L. Burgess v. Kuhlman Corporative, 1997-CA-002849-WC (CrossAppeal), Unpublished Opinion (Ky. App. 1999) .
This Court affirmed the Court of Appeals in an unpublished opinion
rendered May 18, 2000 . Kuhlman Corporation v. William Burgess; Kuhlman
Corporation, as insured by Michigan Mutual; Special Fund; Hon. James L. Kerr,
Administrative Law Judge, and Workers' Compensation Board, 1999-SC-0681-
WC. Specifically, this Court found that "[a] review of the medical testimony
indicates that a permanent harmful structural change in plaintiffs human
organism occurred when he resumed heavier work at Kuhlman." Id. at 5. This
Court further found that "[t]he heavy work done by Burgess caused a
permanent change in his physical condition, rather than simply causing his
original 1977 injury to become more painful." Id. All of Kuhlman Electric's
procedural claims were rejected.
Kuhlman Electric now argues it should be allowed to pursue claims
against Landrum 8v Shouse and Amerisure because their actions impaired
Kuhlman Electric's procedural defenses against Burgess . Even if Kuhlman
Electric is correct that Landrum & Shouse should have withdrawn from the
case as soon as a conflict became apparent, the medical evidence would not
have changed. And, as the Court of Appeals pointed out, another law firm
brought into the underlying case by Amerisure would have taken the same
procedural steps. The rule in a legal malpractice action is:
To prove that the negligence of the attorney caused the plaintiff
harm, the plaintiff must show that he/she would have fared better
in the underlying claim; that is, but for the attorney's negligence,
the plaintiff would have been more likely successful .
Marrs v. Kelly, 95 S.W.3d 856,860 (Ky. 2003) .
Kuhlman Electric cannot now collaterally attack the final judgment in
the underlying case. Since the final decision in the underlying case is that
Burgess suffered a new injury in 1991 for which Kuhlman Electric (when it was
self-insured) was responsible, Kuhlman Electric will be unable to ultimately
prevail in its legal malpractice action against Landrum 8, Shouse and its bad
faith action against Amerisure .
The decision of the Court of Appeals is affirmed .
Minton, C .J . ; Abramson, Cunningham, and Venters, JJ., concur . Vesper,
S.J. concurs in part and dissents in part by separate opinion in which Scott,
J ., joins . Noble and Schroder, JJ., not sitting.
SPECIAL JUSTICE PAUL J. VESPER, CONCURRING IN PART AND
DISSENTING IN PART:
I concur with the majority's conclusion in affirming the Court of Appeals
by rejecting the argument of Landrum & Shouse that Kuhlman Electric/ Self
Insured was a separate entity from Kuhlman Electric Corporation . Kuhlman
Electric was the client of Landrum 8s Shouse when insured by Amerisure and
did not cease to be the client when Amerisure's interest became adverse.
However, I disagree with the majority in concluding, as the Court of Appeals
did, that sufficient evidence is before the Court to conclude Kuhlman Electric
would be unable to demonstrate damages even if it successfully proves
Landrum & Shouse and Amerisure violated fiduciary duties .
Si nificant Procedural _History
The majority cites to the record of the Court of Appeals ruling in Kuhlman
Electric Corporation v . Stephen R. Chappell, et al . Nos. 2003-CA-001232-MR
and 2004-CA-000633-MR, 2005 WL 3243498 (Ky. App. Dec . 2, 2005) which
points out discovery before the trial court was not closed or complete when the
trial court was asked to address the question, "who is the client" . The record
was sufficiently complete to address this primary question. When the trial
court wrongly concluded there was no attorney-client obligation between
Landrum & Shouse (herein L&S) and Kuhlman Electric /Self Insured (herein
"Kuhlman/SI"), the trial court fairly resolved there was no reason to go further
and dismissed the claims as to L&S and Amerisure.
When the Court of Appeals reversed the trial court on the threshold issue
of attorney-client relationship, and then adopted the results of the trial court in
dismissing the claim as to L&S, it concluded no damages would have been
provable under any set of facts . This conclusion was based on the finality of
the workers' compensation award finding a new injury with apportionment of
benefits .
10
I disagree that the issue of damages or breach of any duty would be
foreclosed .
By the time the summary judgment was being considered, sufficient
information would have been before the trial court, had it concluded an
attorney-client relationship existed, to require further review . These
circumstances could have been apparent at least as early as when the Motion
to Add Kuhlman/ SI to the workers' compensation claim was filed on August
26, 1992 by L&S as attorney for Kuhlman Electric . L&S had knowledge to
support its theory that the August 20, 1991 injury, allegedly worsening the
condition of Burgess, may have been a "new injury" . The record implies these
conclusions were communicated to Amerisure and possibly others but not the
client, Kuhlman Electric . And because the workers' compensation claim was
held in abeyance from November 20, 1992, until January 23, 1996,
Kuhlman/SI may not have focused on the medical-legal issues to support its
own defense of the second reopening claim since Kuhlman/ SI could have
reasonably expected to believe it could rely on its attorney, L&S, to keep it
informed .
At a minimum, L&S should have been expected to share its conclusions
and impressions of the claim with Kuhlman Electric, its client. If L&S had
informed Kuhlman/SI of its impressions, Kuhlman Electric may not have been
found to have been estopped to raise reasonable and valuable defenses to this
"new injury" theory, and, thereby avoid the results of the adverse ruling.
Alternatively, on review, the trier of fact might find Kuhlman/ SI had sufficient
information and it could have been more diligent when it was added as a party
self-insured . Either way, such circumstances and questions were sufficient to
allow proof of causation and any damages .
Apparently in 1992, L8,S- had resolved in its own mind its theory of
"multiple identities" was acceptable, to believe no conflict of interest occurred
in its continuing to represent Kuhlman Electric either as a client or as a former
client. This theory, while providing protection to attorneys from conflict of
interest claims, does nothing to give a client confidence in the profession
exclusively charged with representing the client's interest before adversarial
tribunals (nor in the settlement of claims) .
Remaining Factual Conclusions to be Determined
The record, as interpreted in the light most favorable to the non-moving
party, requires this Court to support the ruling of the Court of Appeals,
concluding L&S had but one client, and that was Kuhlman Electric . I am
persuaded this Court is also compelled to reverse in part the conclusion, as the
record now stands, that there could be no damages provable to prevail on the
so-called "case within the case" . While the compensation award for Burgess is
final, had there been disclosure by the attorney of its impression to its client in
1991, the Burgess claim may have resulted in a different outcome or a
lessening of the consequences to Kuhlman Electric .
A long line of decisions has held that the question of whether the
conduct of an attorney meets the standard of care test is one for the trier of
12
fact to determine .' Recently, this Court, in Marrs v. Kelly, 95 S .W.3d 856 (Ky.
2003), remanded a matter to the trial court on a causation issue . In
concurring in part, and dissenting in part, Justice Cooper argued forcefully the
matter should not be referred back to a jury, as a trier of fact, on the question
of causation. Rather, this matter should strictly be within the province of a
judge, sitting without a jury.
If this Court is prepared to adopt the Court of Appeals' opinion, holding
the issue of causation and damages was so closed to warrant summary
judgment, there being nothing for the trier of fact to decide, then the precedent
from this ruling may send a confusing interpretation of whether causation
issues are now strictly the province of the court as a matter of law rather than
an issue for a jury sitting as fact finder. If this Court is prepared to accept
those consequences, then it should clearly hold and say so .
If this is not the majority's position, then the only result one can expect
from the status of this case when it was before the Fayette Circuit Court when
summary judgment was issued, mandates that it be remanded for further
proceedings.
This matter should be remanded to the trial court to complete discovery
and address this and similar issues in defenses relating to any breach of duties
in the attorney-client relationship and damages caused thereby, if any.
I do not mean to suggest ultimately that the outcome may be different,
but the record as it stands, does not support summary judgment.
See Daugherty v. Runner, 581 S.W.2d 12 (Ky. App. 1978)
13
While the factual and legal situation is different with Amerisure, the
rulings on summary judgments were so dependent on the issue of whom L8-S
represented, the summary judgment in favor of Amerisure should also be
remanded for consideration. Based upon further discovery and development of
the facts, the interactions between the litigants may be subject to further
scrutiny.
Scott, J ., joins.
COUNSEL FOR STEPHEN R. CHAPPELL, INDIVIDUALLY AND AS
PARTNERS AND/OR EMPLOYEES OF LANDRUM 8v SHOUSE, A
KENTUCKY GENERAL PARTNERSHIP; THOMAS M. COOPER,
INDIVIDUALLY AND AS PARTNERS AND/OR EMPLOYEES OF
LANDRUM 8v SHOUSE, A KENTUCKY GENERAL PARTNERSHIP;
LANDRUM 8v SHOUSE, A KENTUCKY GENERAL PARTNERSHIP; AND
LANDRUM -& SHOUSE, L.L.P., A KENTUCKY LIMITED LIABILITY
PARTNERSHIP:
Elizabeth S. Feamster
Guy R. Colson
Fowler, Measle & Bell, LLP
300 W. Vine St., Ste. 600
Lexington, KY 40507-1660
COUNSEL FOR AMERISURE MUTUAL INSURANCE COMPANY,
FORMERLY KNOWN AS MICHIGAN MUTUAL INSURANCE COMPANY:
Robert Dmitri Bobrow
Robert E . Stopher
Boehl, Stopher & Graves, LLP
Aegon Center, Ste. 2300
400 W. Market St.
Louisville, KY 40202-3354
COUNSEL FOR KUHLMAN ELECTRIC CORPORATION :
William C . Rambicure
Christopher D . Miller
Rambicure 8, Miller, PSC
219 E. High St.
P.O . Box 34188
Lexington, KY 40588-4188
John C . Morton
Kurt Richard Denton
Morton Law, LLC
126 N . Main St.
P.O . Box 883
Henderson, KY 42419-0883
Samuel J . Bach
110 N. Main St ., P.O . Box 881
Henderson, KY 42419-0881
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