Zimmerman v. Brown

306 P.3d 306, 49 Kan. App. 2d 143, 2013 WL 3483809
CourtCourt of Appeals of Kansas
DecidedJuly 12, 2013
DocketNo. 108,087
StatusPublished
Cited by8 cases

This text of 306 P.3d 306 (Zimmerman v. Brown) is published on Counsel Stack Legal Research, covering Court of Appeals of Kansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Zimmerman v. Brown, 306 P.3d 306, 49 Kan. App. 2d 143, 2013 WL 3483809 (kanctapp 2013).

Opinion

Standridge, J.:

Daniel and Sara Zimmerman (the plaintiffs) brought a legal malpractice claim against attorney Richard Brown and Richard’s law firm, Brown, Isem & Carpenter (tire defendants), related to the sale of the plaintiffs’ Quixtar (formerly Amway) business to Richard and his wife. Marlene Brown, Richard’s wife, was also originally named as a defendant but was later dismissed from the action. The defendants moved for summary judgment on grounds that the doctrines of in pari delicto and illegality prohibit the plaintiffs from recovering damages against the defendants for legal malpractice. Alternatively, the defendants argued the plaintiffs failed to come forward with sufficient evidence to establish die essential elements of a legal malpractice cause of action. The district court granted summary judgment in favor of the defendants based on the defenses of in pari delicto and illegality. In light of this ruling, the court found it unnecessary to address whether the plaintiffs had come forward with sufficient evidence to establish legal malpractice.

But the record on summary judgment reveals several disputes of material fact that must be resolved by a jury before the court can determine whether the in pari delicto defense applies to prohibit the plaintiffs from recovering damages; thus, the district court erred in holding at the summary judgment stage of the proceedings, as a matter of law, that the doctrine prohibits the plaintiffs from recovering damages against the defendants for legal malpractice. Summary judgment in favor of the defendants based on illegality also was improper because there is insufficient evidence in tire record to establish as a matter of law that the damages sustained by Richard’s alleged breach of fiduciary duty was a natural and probable consequence of the plaintiffs’ decision to sell their Quix-[146]*146tar business to Richard and his wife. As to the propriety of summary judgment on tire merits of the plaintiffs’ underlying claim, we find the plaintiffs have satisfied their burden to come forward wtth sufficient evidence to establish the essential elements of a legal malpractice cause of action; thus, they are entitled to- go forward with their claim.

Facts

The plaintiffs lived across the street from their friends of many years, Richard and Marlene Brown. Richard had been the plaintiffs’ attorney for over 30 years in a variety of business matters. Both couples, along with Roy and Marcia Westhoff, were Quixtar distributors. Quixtar was a multilevel marketing company. Relevant here, tire plaintiffs had built up quite a successful Quixtar business, which in 2006 generated income for the plaintiffs in an amount of $23,290. The parties referred to this income as “mailbox money” because the sales generating this income were transacted not by the plaintiffs themselves, but by a number of distributors at suc-céssively lower levels.

At all times relevant to this lawsuit, Quixtar prohibited its distributors from participating in any other multilevel marketing business while acting as a distributor for Quixtar and required any distributor who sold or terminated a Quixtar business to wait 6 months before entering into another multilevel marketing business. Additionally, former Quixtar distributors were not allowed to solicit their Quixtar contacts for purposes of involvement with another multilevel company for 2 years after leaving Quixtar.

In late 2006, the plaintiffs, the Browns, and the Westhoffs were presented with an opportunity to participate in XanGo, a multilevel juice and supplement marketing company. All three couples were interested in XanGo but had concerns because of rumors that various Quixtar distributors found to have violated their noncompete agreement- by becoming involved in other multilevel marketing businesses.-had been forced to relinquish their Quixtar distributorships..--The three couples later met to discuss whether they should get involved with XanGo and whether doing so would violate the Quixtar noncompete restrictions.

[147]*147After this initial meeting, Richard obtained a copy of Quixtar’s compendium, which contained all the Quixtar rules and regulations. Thereafter, the three couples met again. Richard informed the group that in order to become involved with XanGo without violating Quixtar’s restrictions, each couple would need to set up a corporation owned by a straw man to set up and manage the XanGo business so that ownership could not be traced back to any of the couples. Because the plaintiffs’ Quixtar business was so lucrative, Richard specifically told them that they should enter into a false sale of their Quixtar business to another straw man. Richard advised the plaintiffs that it was important that they pick individuals they could really trust in connection with the formation of the XanGo business and the false sale of the Quixtar business. After some discussion, the parties decided that plaintiffs would “sell” their Quixtar business to the Browns, their direct up-line Quixtar distributor, because Quixtar required the plaintiffs to first offer the business to their direct up-line distributor. The parties thought this arrangement was best because the Quixtar higher-ups, or “diamonds,” would “have their eyes on [the plaintiffs],” and a sale to the Browns would not “stir up a lot of stuff with the diamonds.”

On January 18, 2007, the plaintiffs and the Browns executed an Independent Business Sale Agreement pursuant to which the plaintiffs “sold” their Quixtar business to the Browns for $36,550.22. As was required, the agreement subsequently was approved by Quixtar. Significant for purposes of summary judgment, the parties agreed that they understood that the written agreement would not be an actual sale and that the Browns would forward all earnings received to the plaintiffs “forever.” In connection with the false sale and as an additional measure to avoid violating Quix-tar’s noncompete provisions, the plaintiffs established GreenTree Corporation in the name of Sara’s father, George Miller, to manage the XanGo business. Richard prepared GreenTree’s incorporation papers and submitted them to the Kansas Secretary of State on the letterhead of his law firm, Brown, Isern & Carpenter. Richard also prepared a stock purchase agreement allowing the plaintiffs to purchase the corporation from Miller after expiration of the 6-month noncompete period.

[148]*148Both parties to the sales agreement actively participated in XanGo until April or May 2007, when the Westhoffs got into trouble with Quixtar for soliciting Quixtar customers for their XanGo distributorship. Daniel and Richard were not happy about the Westhoffs getting caught by Quixtar because they did not want any red flags. Thereafter, the plaintiffs ceased all local XanGo business because they were worried about getting into trouble with Quixtar like die Westhoffs.

From March 15, 2007, to July 15, 2008, the Browns deposited payments received from Quixtar into die plaintiffs’ bank account. The Browns made no more payments to the plaintiffs after July 2008.

On November 9, 2009, the plaintiffs filed suit against Richard, Marlene, and Brown, Isern & Carpenter, alleging breach of fiduciary duty, fraud and fraudulent inducement, breach of contract, promissory estoppel, tortious interference with existing contractual relations, tortious interference with prospective business advantage or relationship, and negligence/legal malpractice.

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Cite This Page — Counsel Stack

Bluebook (online)
306 P.3d 306, 49 Kan. App. 2d 143, 2013 WL 3483809, Counsel Stack Legal Research, https://law.counselstack.com/opinion/zimmerman-v-brown-kanctapp-2013.