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recognizing that "such a distinction would effectively eviscerate the discovery deadlines set forth in scheduling orders"
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No. CIV-04-1367 PHX ROS.
August 17, 2006
OPINION AND ORDER
Pending before the Court is Defendants' Motion for Partial Summary Judgment (Doc. #64), Defendants' Motion for Judgment on the Pleadings (Doc. #85), and a number of procedural and evidentiary motions. For the following reasons, Defendants' Motion for Partial Summary Judgment will be denied and the Motion for Judgment on the Pleadings will be granted.
The Court did not set this matter for oral argument because the parties submitted memoranda thoroughly discussing the law and evidence in support of their positions, and oral argument would not have aided the Court's decision. See Mahon v. Credit Bur. of Placer County, Inc., 171 F.3d 1197, 1200 (9th Cir. 1999).
BACKGROUND
In June of 2002, Plaintiff Energex Enterprises, Inc. ("Energex") filed an action in Maricopa County Superior Court entitled Energex Enterprises, Inc. v. Aztech Energy Systems, Inc., et. al., No. CV-2002-011251 ("first civil action"), in which they were represented by the Defendants. (Doc. #4, pp. 2-3) Plaintiff Energex engaged Defendants pursuant to an oral agreement to pay a maximum fee of $30,000, plus costs and expenses, in return for their representation preparing for and arguing at a preliminary injunction hearing. (Id., p. 6) At the suggestion of presiding Judge Cathy Holt, the parties and their counsel underwent settlement discussions resulting in a settlement agreement, which was executed in July 2002. (Id., p. 3) The president of Energex, Plaintiff Brad Geuke, was a signatory to the settlement agreement in his individual capacity. (Id.)The settlement agreement governed subsequent business transactions between Energex and Aztech Energy Systems, LLC ("Aztech"), as well as commissions, royalties, and payments from Aztech to Energex. (Id.) However, Aztech refused to make the payments to Energex, arguing that the lack of term or provision in the agreement stating when payments were due meant they did not owe a payment to Energex on a particular date. (Id.) In addition, Aztech claimed that Energex and Geuke had breached the settlement agreement. Aztech commenced a lawsuit against Plaintiffs, Aztech Energy Systems, Inc., Door Miser, LLC, John A. Bunch and Bruce Malwitz v. Energex Enterprises, Inc., Brad Geuke and Sonya Geuke, No. CV 2003-003253 ("second civil action"). (Id.) Plaintiffs responded with a counterclaim for breach of the settlement agreement. (Doc. #65, p. 3) The second civil action was settled by entry of a stipulated judgment in favor of Plaintiffs, and payment of $175,000 to them. (Id.)
On July 2, 2004, Plaintiffs filed a Complaint against Defendants (Doc. #1), followed by an Amended Complaint on October 7, 2004 (Doc. #4). Plaintiffs allege two counts: professional negligence and breach of contract. Both counts are based on Defendants' representation for the settlement and drafting of the settlement agreement in the first civil action. (Doc. #4) On January 17, 2006, Defendants filed a Motion for Partial Summary Judgment on Plaintiff's Claim for Negligence. (Doc. #64) On April 27, 2006, Defendants filed a Motion for Judgment on the Pleadings as to Count Two (Breach of Contract) and Plaintiffs' Claim for Emotional Distress Damages. (Doc. #85) Plaintiffs filed a Response to the Motion for Judgment on the Pleadings, as well as a Motion to Strike, on May 15, 2006. (Doc. #87).
The Court's Rule 16 Revised Scheduling Order specifically states that all dispositive motions were to be filed by January 15, 2006, and absent permission of the Court, only one dispositive motion may be filed by each party. (Doc. #54) However, Defendants did not file their first dispositive motion until January 17th, 2006 (Doc. #64), and their second dispositive motion until April 27th, 2006. (Doc. #85) Defendants did not make any motions requesting extensions of time or permission to file a second dispositive motion.
ANALYSIS
I. Jurisdiction
Plaintiff Energex is organized under the laws of the state of Colorado, and Plaintiff Brad Geuke is a resident of Colorado. Defendant Shughart, Thomson, Kilroy, P.C. ("STK") is licensed under the laws of the state of Missouri, and authorized to practice law in Arizona. Defendants Marty Harper, Edward Glady, Victoria Stevens, and Kelly Flood are all licensed attorneys and domiciliaries of Arizona. In addition, the amount in controversy exceeds $75,000. As a result, this Court has jurisdiction pursuant to 28 U.S.C. § 1332.
II. Applicable Law
In diversity cases, the Court applies the choice of law rules of the forum state. Lange v. Penn Mut. Life Ins. Co., 843 F.2d 1175, 1178 (9th Cir. 1988) (citing Van Dusen v. Barrack, 376 U.S. 612, 628 (1964)). Thus, the Court will look to Arizona law to determine the applicable law. According to Bates v. Superior Court, 749 P.2d 1367, 1370 (Ariz. 1988), a court must "resolve tort issues under the law of the state having the most significant relationship to both the occurrence and the parties with respect to any particular question." The events underlying the tort claim and the conduct causing the alleged damages occurred in Arizona. Also, the parties' relationship was centered in Arizona and Defendants reside in Arizona. Finally, the parties do not dispute that Arizona law should apply.
In contract actions, the Court considers, "(a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties."Landi v. Arkules, 835 P.2d 458, 463 (Ariz.Ct.App. 1992). In this case, the oral contract was made for STK's representation in Arizona, where STK and the other Defendants conduct their legal practice. In addition, the alleged breach of contract concerned Defendants' actions in Arizona. The parties do not dispute that Arizona law should apply. For these reasons, the Court will apply Arizona law to both counts.
III. Motion for Partial Summary Judgment
A. Legal Standard
A court must grant summary judgment if the pleadings and supporting documents, viewed in the light most favorable to the non-moving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986). Substantive law determines which facts are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In addition, the dispute must be genuine, that is, "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248.
Furthermore, the party opposing summary judgment "may not rest upon the mere allegations or denials of [the party's] pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); see Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). There is no issue for trial unless there is sufficient evidence favoring the non-moving party; "[i]f the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-250 (citations omitted). However, "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Id. at 255. Therefore, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor" at the summary judgment stage. Id.
B. Causation
Defendants have moved for Partial Summary Judgment on Plaintiffs' legal malpractice claim. In order to prove legal malpractice, Plaintiffs must establish "(1) the existence of an attorney-client relationship which imposes a duty on the attorney to exercise that degree of skill, care and knowledge commonly exercised by members of the profession, (2) breach of that duty, (3) that such negligence was a proximate cause of resulting injury, and (4) the fact and extent of the injury." Phillips v. Clancy, 733 P.2d 300, 303 (Ariz.Ct.App. 1987). Plaintiffs claim that Defendants' negligent representation and negligent drafting of the settlement agreement caused them various damages including lost revenues, attorneys' fees, and emotional pain and suffering. Defendants move for Partial Summary Judgment, arguing that Plaintiffs will be unable to demonstrate causation. (Doc. #64) Defendants contend that whether Aztech (the other party to the settlement agreement) would have agreed to certain provisions, or whether such provisions would have prevented Aztech's breaches and the second civil action, is speculation. (Id., p. 2) Also, Defendants believe that the damages alleged are solely the result of Aztech's breach, rather than Defendants' actions. (Id.)
"The general rule is that the question of causation is one of fact for a jury except in those instances where no reasonable persons could disagree." Molever v. Roush, 732 P.2d 1105, 1112 (Ariz.Ct.App. 1987); see also Robertson v. Sixpence Inns of America, Inc., 789 P.2d 1040, 1047 (Ariz. 1990). Arizona courts have relied on this principle and refused to grant summary judgment on the issue of causation in legal malpractice cases similar to the current case. In Reed v. Mitchell Timbanard, P.C., 903 P.2d 621 (Ariz.Ct.App. 1995), the plaintiff brought a legal malpractice action against her divorce attorneys alleging negligent failure to adequately secure a promissory note from her ex-husband. The ex-husband had defaulted on the note and the plaintiff argued that her attorneys' failure to secure the note with all available assets prevented her from collecting on the note and constituted malpractice. The husband's failure to pay the note was the most obvious cause of plaintiff's harm and the attorneys moved for summary judgment based on their belief that the plaintiff would be unable to show that but for their negligence she would have been able to collect the money from her ex-husband. Reed, 903 P.2d at 625. The appellate court held that the plaintiff had presented sufficient evidence that the attorneys' actions had caused her harm to survive summary judgment; causation was a fact issue for the jury. Id. at 626. Similarly, in Tennen v. Lane, 716 P.2d 1031 (Ariz.Ct.App. 1986), the plaintiff brought a legal malpractice claim against an attorney who had assisted her ex-husband in fraudulently procuring her consent to a property agreement. The attorney argued that what would have occurred absent plaintiff's fraudulently obtained consent was speculation because the husband could have disposed of certain property even without obtaining the plaintiff's consent. Id. at 1033. The appellate court reversed the directed verdict entered in favor of the attorney, finding that a question of fact existed whether the attorney's actions were "a proximate cause of damage to the [plaintiff]," regardless of the potentially more culpable actions by the ex-husband. Id. at 1034.
Applying these cases to the current situation, there is a disputed issue of fact whether the allegedly negligent drafting of the settlement agreement was a proximate cause of damage to Plaintiffs. The fact that Aztech later breached the settlement agreement does not automatically absolve Defendants of all responsibility for their actions. At this stage, Plaintiffs need not show what would have happened if the settlement agreement had been properly drafted (i.e., Aztech would have breached the agreement anyway); it is enough that Plaintiffs have shown they suffered as a result of the allegedly negligent conduct by Defendants (i.e., Plaintiffs were forced into litigation with Aztech as a result of disagreements regarding the settlement agreement). Id. (ruling plaintiff did not have "to prove what would have happened . . . but for the negligence" but merely "what happened with the negligence"). Thus, Aztech's breach does not mandate summary judgment in favor of Defendants.
Another way that Defendants dispute the existence of causation is their argument that Aztech's breach of the settlement agreement broke any possible chain of causation and relieves them of liability. (Doc. #75, p. 2) But "[t]he law does not relieve a defendant from liability simply because of the intervening act of a third person. It is only when the intervening act is considered [a] superseding cause that the original actor is relieved of liability for his negligence." Rossell v. Volkswagen of America, 709 P.2d 517, 525 (Ariz. 1985). An intervening act is only a superseding cause when it is unforeseeable or extraordinary. Id.; Robertson, 789 P.2d at 1047. Plaintiffs submitted an expert affidavit detailing Defendants' failures to fulfill their professional duty and stating that such failures caused the damages involved. (Doc. #71, Ex. C) The omissions in the settlement agreement leads to an inference that Aztech's breach was foreseeable. In addition, whether an intervening act is foreseeable is usually a question of fact for the jury. Robertson, 789 P.2d at 1048; see also Ileto v. Glock Inc., 349 F.3d 1191, 1203 (9th Cir. 2003) ("[F]oreseeability often is a question left for the jury to decide.")
Finally, Defendants argue that causation does not exist because Plaintiffs can not demonstrate that Aztech would have agreed to extra provisions, such as specific dates when payments become due. However, Plaintiffs suggest that absent Defendants' negligent representation there would have been no settlement agreement at all. In his affidavit, Plaintiff Brad Geuke states that if properly advised by Defendants he "would have insisted upon provisions protecting Energex's interests including due and payable terms and remedies in the event of default," without which he would not have consented to the settlement agreement. (Doc. #71, Ex. G, p. 6) He also states that if there had been no settlement the parties would have proceeded with the preliminary injunction hearing and Energex would have been successful. (Id.) To support their argument that they would have been successful at the preliminary injunction hearing, Plaintiffs submitted certain excerpts of the court transcript. (Id., Ex. F) Plaintiffs' assertions and proffered evidence create a question of fact for the jury as to whether Plaintiffs would have been successful at the preliminary injunction hearing. See Reed v. Mitchell Timbanard, P.C., 903 P.2d 621, 625-26 (Ariz.Ct.App. 1995) (holding that whether judge would have signed decree with terms defendants failed to include raises question of fact). For these reasons, summary judgment regarding the negligence claim will be denied.
IV. Motion for Judgment on the Pleadings
A. Legal Standard
Pursuant to Federal Rules of Civil Procedure 12(c), after pleadings are closed any party may move for judgment on the pleadings. "A district court will render a judgment on the pleadings when the moving party clearly establishes on the face of the pleadings that no material issue of fact remains to be resolved and that it is entitled to judgment as a matter of law." Enron Oil Trading Transp. Co., v. Walbrook Ins. Co., Ltd., 132 F.3d 526, 529 (9th Cir. 1997) (citations omitted). In doing so, the court "must accept all material allegations of the complaint as true and view them in the light most favorable to the plaintiff." Century 21 Real Estate Corp., v. Re/Max South County, 882 F. Supp. 915, 921 (C.D. Cal. 1994) (citations omitted). In fact, "the allegations of the non-moving party must be accepted as true, while the allegations of the moving party which have been denied are assumed to be false." Hal Roach Studios, Inc., v. Richard Feiner and Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1990).
B. Breach of Contract
Defendants have moved for Judgment on the Pleadings regarding Claim II, the Breach of Contract claim. (Doc. #85) Under Arizona law, breach of the duties owed by attorneys to their clients arises out of tort, not contract. Barmat v. John Jane Doe Partners, 747 P.2d 1218, 1222 (Ariz. 1987) ("The cause of action for malpractice would exist even if the client or patient had expressly declined the professional's services."). A legal malpractice claim can only arise out of contract if there is evidence of a specific promise that was breached apart from the duty imposed by law. Desilva v. Baker, 96 P.3d 1084, 1092 (Ariz.Ct.App. 2004); see also Collins v. Miller Miller, Ltd., 943 P.2d 747, 755 (Ariz.Ct.App. 1997) ("Only if there is a specific promise contained in the contract can the action sound in contract."). Plaintiffs allege in their complaint that Energex entered into an oral contract with Defendants for them "to provide proper representation and prosecute the action to and through a preliminary injunction hearing." (Doc. #4, p. 6) These are the only allegations, besides the payment amount, in the Plaintiffs' complaint that establish the existence of a contract between the parties. (Id.) An "agreement to provide `reasonable and necessary legal services' is nothing more than a general promise which encompasses the basic duty imposed by law. . . . It clearly lacks the specificity required for a breach of contract action." Collins, 943 P.2d at 755. Plaintiffs' agreement with Defendants is just as general, and as a result their Breach of Contract claim must be dismissed.
Plaintiffs argue that dismissal is unwarranted as there is a genuine issue of material fact due to Defendants' denial of the existence of a contract in their Answer to the Complaint. (Doc. #87, p. 10) Plaintiffs contend that questions regarding the existence or validity of a contract require determination by the jury. (Id.) However, Plaintiffs' arguments in opposition of dismissal are without merit. Even when examining Plaintiffs' pleadings in the most favorable light and accepting all allegations as true, dismissal must be granted. The alleged contract between Plaintiffs and Defendants is a general agreement, which as a matter of law does not raise a contract claim. For these reasons, Defendants' Motion as to the Breach of Contract claim is granted.
C. Emotional Distress Damages
Defendants have also moved for Judgment on the Pleadings regarding Plaintiffs' Claim for Emotional Distress Damages. (Doc. #85) Under Arizona law, emotional distress damages in negligence actions require physical injury, outrageous conduct, intentional infliction of emotional distress, or allegations of bad faith.Deno v. Transamerica Title Ins. Co., 617 P.2d 35, 37-38 (Ariz.Ct.App. 1980). In Reed, the court held "that simple legal malpractice resulting in pecuniary loss which in turn causes emotional upset, even with physical symptoms, will not support a claim for damages for emotional distress," except when damages are to a personal interest. 903 P. 2d at 626-27. Plaintiffs allege in their Complaint that Defendants' negligence resulted in Plaintiff Geuke being exposed to personal liability, so that he was required to personally defend himself in the second civil action. (Doc. #4, p. 4) Plaintiffs allege that Geuke's exposure to "irreparable risk of loss and damage" resulted in him experiencing "mental and emotional pain suffering and emotional stress, loss [or] an impairment of the enjoyment of life and other such non-economic loss and injury." (Id., p. 5, lns. 5-8)
Plaintiffs argue that Geuke's emotional distress damages are not the result of possible pecuniary loss, but are personal losses within an exception outlined in Reed. (Doc. #87, p. 11) Emotional distress damages may be warranted when personal interests are involved (such as in child custody cases), but that exception is not applicable in this instance. See Reed, 903 P.2d at 626-27 (citing D. Dusty Rhoades and Laura W. Morgan, Recovery for Emotional Distress Damages in Attorney Malpractice Cases, 45 S.C. L.Rev. 837, 845-49 (1994) (discussing cases involving loss of liberty or family law)). (Id., p. 12) The clear language of the Complaint precludes Plaintiffs' argument as it states that the "great and irreparable risk of loss and damage," e.g., possibility of pecuniary loss, made him suffer "mental and emotional pain." Due to the absence of allegations of bad faith or intention on the Defendants' part, Plaintiffs are entitled to judgment on the pleadings for the claim for emotional distress damages.
Plaintiffs also argue that it is more appropriate for the Defendants to request a limiting jury instruction as to specific damages, rather than seek dismissal. (Doc. #87, p. 7) However, it is clear that pre-trial judgments on damages may be issued. See Reed, 903 P.2d at 627 (granting partial summary judgment regarding emotional distress damages); Hislop v. Salt River Project Agric. Improvement Power Dist., 593 P.2d 668 (Ariz. 1979) (affirming trial court's grant of summary judgment denying emotional distress damages).
V. Motion to Strike
Plaintiffs move to strike Defendants' Motion for Judgment on the Pleadings (Doc. #85), as well as an award of reasonable attorney fees, as a sanction for failing to comply with this Court's Scheduling Order (Doc. #54). (Doc. #87, pp. 12-13) Because the Court finds that Defendants' Motion for Judgment on the Pleadings is warranted and should be granted, the Court will not grant Plaintiffs' Motion to Strike. However, the Court advises Defendants that the Court takes noncompliance with provisions of its scheduling orders seriously and further violations of any Court orders will be dealt with more severely.
VI. Motion to Conduct Additional Depositions
Plaintiffs filed a Motion for Permission to Conduct Trial Testimony Depositions in Lieu of Live Trial Testimony. (Doc. 89) Plaintiffs request that they be allowed "to conduct preservation depositions and obtain the `trial' testimony of certain witnesses." (Doc. #89, p. 2) These depositions would be "used in lieu of live trial testimony." (Id.) The only basis for Plaintiffs' request is that "[j]udicial economy and reduction of trial expenses will result from the taking of the trial testimony . . . by deposition." (Id.) Plaintiffs cite no authority in support of their request.
"The Federal Rules of Civil Procedure do not distinguish between depositions taken for discovery purposes and those taken strictly to perpetuate testimony for presentation at trial."Integra Lifesciences I, Ltd. v. Merck KgaA, 190 F.R.D. 556, 558 (S.D. Cal. 1999). Plaintiffs' argument that these depositions should be allowed based upon such a distinction would effectively eviscerate the discovery deadlines set forth in scheduling orders. See id. A party would be free to wait until after the close of discovery to take any number of depositions. Thus, "a party [that] makes a tactical decision during discovery to refrain from deposing a non-party witness . . . takes the risk that the testimony will not be presented if the witness does not voluntarily appear." Id. at 559. Plaintiffs took that risk and they must now live with their choice. The motion to conduct additional depositions will be denied.
VII. Motion in Limine
Also pending before the Court is a Motion in Limine filed by Defendants seeking to exclude the testimony of four individuals. (Doc. 86) The parties subsequently agreed that two of the witnesses would not be called. (Doc. 88, 92) The two remaining witnesses, Judge Cathy Holt and Myrna Ferguson, were scheduled to testify via deposition. Because that is no longer an option, the motion in limine is potentially moot and will be denied. If Plaintiffs intend to have these witnesses testify in person, Defendants may file another motion in limine that the Court will address at the Final Pretrial Conference.
There appears to be some confusion involving the parties' agreement regarding these witnesses. If the parties are not, in fact, in agreement regarding their testimony, Defendants should file an additional motion in limine setting forth that disagreement.
Accordingly,
IT IS ORDERED that Defendants' Motion for Partial Summary Judgment (Doc. #64) is DENIED. IT IS FURTHER ORDERED that Defendants' Motion for Judgment on the Pleadings (Doc. #85) is GRANTED. IT IS FURTHER ORDERED that Plaintiffs' Motion to Strike (Doc. #87) is DENIED. IT IS FURTHER ORDERED Plaintiffs' Motion for Permission to Conduct Trial Testimony Depositions in Lieu of Live Trial Testimony is DENIED. (Doc. 89)
IT IS FURTHER ORDERED Defendants' Motion in Limine (Doc. 86) is DENIED. IT IS FURTHER ORDERED that the Parties are to file their Joint Proposed Pretrial Order, all Motions in Limine, Joint Statement of the Case, Joint Jury Instructions, Verdict Forms, and Stipulated Voir Dire Questions by October 11, 2006.
IT IS FURTHER ORDERED the Final Pretrial Conference is set for November 9, 2006 at 1:30 P.M.
IT IS FURTHER ORDERED trial is set for November 14, 2006 at 9 a.m.