Peggy Crist v. Paul Kelly Loyacono

• Court: Mississippi Supreme Court
• Decided: August 20, 2009
• Docket: 2009-CA-01547-SCT
• Status: Published

Opinion

IN THE SUPREME COURT OF MISSISSIPPI

NO. 2009-CA-01547-SCT

PEGGY CRIST, THERESEA EDWARDS, PATRICIA GUTHRIE, JANE HAMILTON, HELEN HEARD, BERTHA MIXON, JENNIE PARKER, JAMES REED, JR., GLENDA RIVERS, PAMELA ROBINSON, KAREN THORNTON, VIRGINIA TOWNSEND, VERA WELLS, MARY WHITTINGTON, LINDA WILLIAMS AND PEGGY WINTERS

v.

PAUL KELLY LOYACONO AND E. SCOTT VERHINE

DATE OF JUDGMENT: 08/20/2009 TRIAL JUDGE: HON. KOSTA N. VLAHOS COURT FROM WHICH APPEALED: WARREN COUNTY CIRCUIT COURT ATTORNEYS FOR APPELLANTS: DAVID L. MINYARD TIFFANY LEIGH KILPATRICK ATTORNEYS FOR APPELLEES: GLENN GATES TAYLOR CHRISTY MICHELLE SPARKS NATURE OF THE CASE: CIVIL - LEGAL MALPRACTICE DISPOSITION: REVERSED AND REMANDED - 04/21/2011 MOTION FOR REHEARING FILED: MANDATE ISSUED:

BEFORE WALLER, C.J., DICKINSON, P.J., AND KITCHENS, J.

DICKINSON, PRESIDING JUSTICE, FOR THE COURT:

¶1. Sixteen former clients sued two lawyers who had represented them in mass-tort

litigation, claiming the lawyers had breached their fiduciary duty by prematurely settling

their cases in order to maximize attorney fees. Responding to a motion for summary

judgment, the former clients produced a witness—a mass-tort lawyer whom the defendant lawyers had associated, and then fired—who testified that he had settled numerous similar

cases for much more than the former clients received. The lawyer also produced a settlement

document he had prepared, in part, by using another lawyer's matrix as a go-by.

¶2. The trial judge—finding that the lawyer’s testimony and matrix were inadmissible

hearsay, and that the clients were required to, but could not, prove they would have won their

cases at trial—granted summary judgement. We hold that the clients were not required to

prove they could have won their underlying case in order to pursue their breach of fiduciary

claim against their lawyers, and that the trial court erred in excluding the lawyer’s testimony.

FACTS

¶3. Additional facts and background of this twelve-year-old case, on its second trek to this

Court, were previously reported.1

¶4. Upon learning that attorney Keith Morgan was amassing clients in litigation against

American Home Products Corp.2 (“AHP”), attorney E. Scott Verhine advised Morgan that

he could produce some clients. Verhine, together with attorney Paul Kelly Loyacono, signed

up fifty-five clients who claimed to have used AHP’s Fen-Phen product.

¶5. Verhine and Loyacono then associated Morgan, agreeing that he would receive

seventy-five percent of the attorney fees generated by the fifty-five clients. When Morgan

filed suit, neither Loyacono nor Verhine signed the complaint as attorneys of record.

1 Our first review of this case involved a statute-of-limitations issue, and we determined some of the plaintiffs were time-barred. See Channel v. Loyacono, 954 So. 2d 415 (Miss. 2007). The instant case presents the same underlying legal-malpractice claims of the plaintiffs whose claims were not time-barred by Channel. 2 Now known as Wyeth, Inc.

2 ¶6. After roughly a year, Morgan and his law firm engaged AHP in settlement

negotiations concerning hundreds of their clients, including the fifty-five provided by

Loyacono and Verhine. Shortly thereafter, Loyacono and Verhine contacted AHP and began

secretly negotiating a settlement of their fifty-five clients’ cases. Of the fifty-five original

clients, thirty-four (including appellants) accepted settlement offers obtained directly by

Loyacono and Verhine. Under these settlements, Loyacono and Verhine received one-

hundred percent of the attorney fees.

¶7. Morgan developed a “settlement matrix” which classified his clients into thirteen

graduated levels based on injury type and severity. A $39-million settlement was reached

with AHP. Of the twenty-one clients that did not accept settlements negotiated by Loyacono

and Verhine, some were part of the settlement negotiated by Morgan et al. According to

Morgan’s sworn testimony and his matrix, the plaintiffs that did accept the settlements

negotiated by Loyacono and Verhine would have received larger awards had they remained

part of the Morgan settlement group.

¶8. The plaintiffs that did accept the offers negotiated by Loyacono and Verhine filed suit

against them alleging, among other things, breach of fiduciary duty in the manner in which

they conducted the settlement negotiations and apportioned the proceeds.

¶9. Following discovery, Loyacono and Verhine moved in limine to exclude Morgan’s

settlement matrix and any testimony from Morgan about his settlement negotiations on the

grounds that it was hearsay and lacked supporting documents. Loyacono and Verhine also

moved for summary judgment on all the claims, arguing in relevant part that the plaintiffs

had not produced any evidence that they would have succeeded in the underlying case

3 against AHP, which Loyacono and Verhine argued was essential to any legal-malpractice

claim. They also argued that the exclusion of the Morgan settlement matrix and related

testimony meant that the plaintiffs no longer had any proof of damages, another essential

element.

¶10. The trial court agreed, finding that Morgan’s matrix and testimony “were based, to

a degree, on another attorney’s matrix” and were “inadmissible on the grounds of hearsay,

lack of any supporting documentation, the failure to designate Morgan as an expert, and

speculation.” The court then granted the defendants’ motion for summary judgment because

“Plaintiffs were required to make out a prima facie case that, if Plaintiffs had not entered into

the settlements at issue, they would have prevailed on their underlying claims against AHP,

and they would have been awarded a monetary sum greater than the settlements negotiated

by Defendants.” 3

¶11. The plaintiffs appealed, presenting two issues:

1. Whether a legal-malpractice claim based on a breach-of-fiduciary-duty theory requires proof of success and a larger award in the underlying action; and

2. Whether the trial court abused its discretion in excluding the Morgan settlement matrix and all of Morgan’s testimony relating to settlement negotiations.

ANALYSIS

1. Whether a Legal-Malpractice Claim Based on a Breach-of-Fiduciary-Duty Theory Requires Proof of Success and a Larger Award in the Underlying Action.

3 Emphasis original.

4 ¶12. In reviewing a trial court's grant or denial of summary judgment, the well-established

standard of review is de novo. Summary judgment is appropriate where “the pleadings,

depositions, answers to interrogatories and admissions on file, together with the affidavits,

if any, 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.” 4 The evidence must be viewed in the light most

favorable to the party against whom the motion has been made.5

¶13. Review of a trial court’s suppression of evidence is reviewed under an abuse-of-

discretion standard.6 Even where an abuse of discretion on an evidentiary issue is found,

“this Court ‘will not reverse unless the error adversely affects a substantial right of a party.’”7

A client’s breach-of-fiduciary-duty claim against an attorney does not require proof that the client would have won at trial.

¶14. It is true – and well established – that a plaintiff in a negligence-based malpractice

action must establish proximate cause by the so-called “trial-within-a-trial” test. That is to

say, the client “must show that, but for [his] attorney's negligence, he would have been

successful in the prosecution or defense of the underlying action.” 8 But we have never

required a legal-malpractice plaintiff alleging breach of fiduciary duty to establish that, but

for the breach, the plaintiff would have won the underlying case. Rather, the proof of

4 Miss. R. Civ. P. 56(c). 5 Duckworth v. Warren, 10 So. 3d 433, 436–37 (Miss. 2009) (internal citations and quotations of cases omitted). 6 Haggerty v. Foster, 838 So. 2d 948, 958 (Miss. 2002). 7 Id. (quoting In re Estate of Mask, 703 So. 2d 852, 859 (Miss. 1997); Terrain Enters., Inc. v. Mockbee, 654 So. 2d 1122, 1131 (Miss. 1995)). See also M.R.E. 103(a). 8 Wilbourn v. Stennett, Wilkinson & Ward, 687 So. 2d 1205, 1215 (Miss. 1996).

5 proximate cause in such cases is “to be tailored to the injury the client claims and the remedy

he elects.”9 This means that expert testimony is not always necessary.10

¶15. The law recognizes a clear distinction between allegations of legal malpractice based

on negligence (sometimes called a breach of the standard of care) and those based on breach

of fiduciary duty (sometimes called a breach of the standard of conduct).11 When a legal-

malpractice claim is based on an allegation of breach of fiduciary duty, the plaintiff must

establish (1) the existence of an attorney-client relationship; (2) the acts constituting a

violation of the attorney’s fiduciary duty; (3) that the breach proximately caused the injury;

and (4) the fact and extent of the injury.12

¶16. This dichotomy is consistent with the differing characters of these two theories.

Because attorneys are afforded a degree of professional autonomy, proof of success in the

underlying case is an appropriate test for proximate cause in a negligence-based action

because it ensures that attorneys are only held professionally liable where their failures to

adhere to the standard of care actually impacted the plaintiff’s interests in the case. But an

9 Singleton v. Stegall, 580 So. 2d 1242, 1245 (Miss. 1991). 10 See, e.g., Lane, 873 So. 2d 92, 99 (Miss. 2004) (“[W]hen the claim is for breach of the standard of conduct [i.e. breach of fiduciary duty], we conclude that lack of expert testimony should not preclude the issue from being heard by a jury.”). 11 See, e.g., Lane, 873 So. 2d at 98 (“legal malpractice may be a violation of the standard of care . . . or the breach of a fiduciary duty”) (citing Hartford Acc. & Indem. Co. v. Foster, 528 So. 2d 255, 284 (Miss. 1988) (Prather, J., dissenting)). 12 Foster, 528 So. 2d at 284–85 (citing Hickox v. Holleman, 502 So. 2d 626, 634 (Miss. 1987); Hutchinson v. Smith, 417 So. 2d 926 (Miss. 1982); Thompson v. Erving's Hatcheries, Inc., 186 So. 2d 756 (Miss. 1966)).

6 attorney’s breach of his fiduciary duties to his client may cause injury to the client entirely

separate from the merits of the underlying case.

¶17. To illustrate, suppose a lawyer receives a client’s settlement check in a doubtful claim,

but procrastinates negotiating the check. Meanwhile, the defendant files bankruptcy, the

check is no longer good, and the client receives nothing. It is no defense to the client’s

lawsuit against the procrastinating lawyer that the client can not prove that he would have

won at trial because the underlying claim was doubtful. The same is true here. The

fiduciary-duty claims against Loyacono and Verhine survive, even absent a showing that the

plaintiffs would have won the underlying Fen-Phen lawsuit against AHP.

Morgan’s testimony was not hearsay, and was sufficient to establish a genuine issue of material fact as to whether the clients would have received a larger settlement.

¶18. The defendant-attorneys argue in the alternative that summary judgment was proper

because the plaintiffs’ only proof of damages—Keith Morgan’s settlement matrix and related

testimony—is inadmissible. But even if we agreed that the trial court properly excluded the

matrix, it was not the only probative evidence of damages. In his deposition, Morgan

testified regarding the amounts actually received by his clients from AHP. This testimony

was not an out-of-court statement, and was sufficient to create a factual question for the jury.

¶19. Because the standard applied by the trial court was overly restrictive, we reverse the

grant of summary judgment as to the fiduciary-duty claims and remand the matter to the trial

court for a ruling on the summary-judgment motion applying the proper standard.13

13 The plaintiff-appellants concede that summary judgment was properly granted as to their negligence-based claims.

7 2. Whether the Trial Court Erred in Excluding Keith Morgan’s Matrix and Testimony.

¶20. The trial court ruled in limine that the settlement matrix prepared by Keith Morgan,

along with all “related testimony” was inadmissible hearsay, inasmuch as it was partly based

on a similar matrix prepared by another attorney. The court also apparently considered the

matrix and related testimony to be opinion evidence within the scope of M.R.E. 702, and

ruled that since Morgan was not designated as an expert, he could not give such opinions.

The plaintiffs argue that the excluded evidence was fact, not opinion, and that Morgan’s

testimony was based on personal knowledge and therefore not hearsay.

¶21. Hearsay is an out-of-court statement offered to prove the truth of the matter asserted.14

So for an out-of-court statement to be admissible, it must either be offered for some other

proper purpose, or fall into one of the enumerated exceptions to the general hearsay rule. For

the purposes of analysis, the written matrix is considered separately from Morgan’s related

testimony.

A. Admissibility of the Morgan Settlement Matrix

¶22. The Morgan Matrix is obviously an out-of-court statement. The document shows the

thirteen classifications and corresponding settlement amounts that Morgan used to distribute

the $39-million payment received from AHP. Therefore, if offered for the purpose of

establishing the fact of those classifications and settlement amounts, it would certainly

constitute hearsay. The plaintiff-appellants did not argue in the trial court—nor do they

argue on appeal—that the Morgan Matrix nevertheless falls into one of the hearsay

exceptions that would allow the matrix to be admitted into evidence, so it is not necessary

14 M.R.E. 801(c).

8 to continue the inquiry. The trial judge did not abuse his discretion in ruling that the Morgan

Matrix was hearsay and therefore inadmissible as evidence.

¶23. We emphasize that this holding is limited solely to the issue of the admissibility of the

Morgan Matrix as evidence. We offer no opinion as to the admissibility of the matrix for

other purposes, such as those contemplated by the exceptions listed under M.R.E. 803.

B. Admissibility of Morgan’s Testimony Regarding Settlement

¶24. Unlike the matrix, Morgan’s in-court testimony about how he handled the settlement

was not hearsay since it was not an out-of-court statement. Although Morgan stated in his

deposition that he devised his matrix, in part, by referring to a similar matrix prepared by

another attorney, the mere existence of the document would not prevent Morgan from

testifying about how he personally determined the settlement values of each of his clients’

cases and the amounts of his previous settlements. Based on the arguments presented at trial

and here, Morgan’s deposition testimony was not inadmissible hearsay.

¶25. The question then is whether Morgan needed to be qualified as an expert to offer his

testimony. Under our rules, expert witnesses may offer opinion testimony where “scientific,

technical, or other specialized knowledge will assist the trier of fact to understand the

evidence or to determine a fact in issue . . . .” 15

¶26. Typically, an expert witness is an “outsider” to the case who evaluates the evidence

in an attempt to explain it to the jury. Before experts may deliver opinions to the jury,

experts must be vetted by the court and must satisfy certain criteria. By contrast, a fact

15 M.R.E. 702.

9 witness may be virtually any competent person 16 whose testimony is based on personal

knowledge.17 Morgan was not qualified as an expert witness, but his testimony was based

on personal knowledge. In other words, Morgan’s proffered testimony was a matter of fact

rather than opinion, and the trial court erred in excluding it.

¶27. The defendants argue (and the trial court found) that Morgan’s estimation of the value

of his clients’ claims was “speculative” opinion testimony that may only be offered by an

expert witness under M.R.E. 702. But the plaintiffs were not offering Morgan’s testimony

to establish his opinion of the value of their claims. Rather, it was being offered to show how

Morgan in fact distributed the settlement money to his clients. While those decisions may

have been based on Morgan’s opinions at the time, the decision-making process and the

resultant matrix was, and is, a matter of fact.

¶28. From the vantage point of trial, Morgan’s past settlement-negotiation process is a

matter of fact within Morgan’s personal knowledge and the rules provide no reason why he

should not be allowed to testify about it. Therefore, it was not hearsay nor was it necessary

to qualify Morgan as an expert before he could testify about the matter.

¶29. But even if Morgan’s testimony did constitute opinion rather than fact, our rules allow

lay opinion testimony of this nature. Under Rule 701, a lay witness may offer opinion

testimony that is “(a) rationally based on the perception of the witness, (b) helpful to the clear

understanding of the testimony or the determination of a fact in issue, and (c) not based on

scientific, technical, or other specialized knowledge within the scope of Rule 702.” Of these

16 M.R.E. 601. 17 M.R.E. 602.

10 three requirements, the first two are easily satisfied. Morgan’s settlement-negotiation process

is clearly based on Morgan’s perception and was helpful to the determination of a fact in

issue— indeed, the trial court essentially ruled that the plaintiffs had no case without it. The

question then turns on whether Morgan’s opinions were “based on scientific, technical, or

other specialized knowledge” usually reserved for experts.

¶30. On this point, the defendants actually make the strongest argument in favor of the

admissibility of Morgan’s testimony. They observe that “Morgan has admitted that he was

the person who exercised his discretion to decide how much of AHP’s block/lump sum

settlement monies would be allocated to a given client of his.” 18 And later:

At each point in [the process of creating his settlement matrix], Morgan came up with his opinions on, e.g., how many injury classification levels there should be, what should be the criteria for each level, which of his clients fell into which level, and what did he think was the value or worth of a claim that fell within a given level, and how much money he was going to allocate to a given level and a client in that level.19

¶31. The defendants further emphasize that Morgan devised his matrix without consulting

any medical experts.

¶32. Obviously, an opinion as arbitrary as the defendants suggest would never satisfy the

strict requirements of expert witnesses under Rule 702 and our caselaw. And this is precisely

why Rule 701 applies. As long as the opinion is not based on the kind of technical expertise

required by Rule 702, a lay witness may offer opinion testimony if the other parts of the rule

are met, as they are here. Since Morgan’s discretionary disbursement of the settlement funds

18 Emphasis in original. 19 Emphasis in original.

11 to his clients did not implicate the kind of specialized knowledge implicated by Rule 702, to

the extent his testimony constitutes opinion, it was admissible under Rule 701. Therefore,

the trial court erred in excluding Morgan’s testimony regarding how he devised the

settlement matrix and how he disbursed the settlement funds to his clients.

CONCLUSION

¶33. The trial court erred in applying a negligence standard to the plaintiffs’ claims of

breach of fiduciary duty, and summary judgment is reversed and remanded as to the breach-

of-fiduciary-duty claims. The evidentiary ruling is reversed to the extent it excluded

Morgan’s in-court testimony regarding the settlement negotiation and payment process he

employed. The case is remanded to the trial court for further proceedings consistent with this

opinion.

¶34. REVERSED AND REMANDED.

WALLER, C.J., CARLSON, P.J., RANDOLPH, LAMAR, KITCHENS, CHANDLER AND PIERCE, JJ., CONCUR. KING, J., NOT PARTICIPATING.