Opinion
No. C7-00-1926.
Filed May 22, 2001.
Appeal from the District Court, Wright County, File No. C600001303.
John S. Schomburg, (for respondent)
Maureen Williams, and David M. Van Sickle, (for appellant)
Considered and decided by Toussaint, Presiding Judge, Amundson, Judge, and Huspeni, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Appellant, in challenging a district court's grant of summary judgment to respondent, alleges that material facts exist. Appellant further alleges the attorney fee agreement and stock purchase agreement should not be enforced because the fee agreement is ambiguous, and because respondent breached his fiduciary duty and unduly influenced appellant. Because the fee agreement is not ambiguous and because there are no material facts supporting appellant's claims of breach of fiduciary duty and undue influence, summary judgment for respondent was proper and we affirm.
FACTS
The marriage of appellant Debra Garthe and her husband was dissolved in June 1992. Pursuant to the dissolution decree, Garthe received an undivided one-half interest in her husband's 40% ownership shares in Bernatello's Pizza, Inc. Later, Garthe consulted with respondent John S. Schomburg, P.A., regarding a possible lawsuit against Bernatello's, its director, William Ramsey, and her ex-husband. Meanwhile, Garthe's ex-husband hired the Robins, Kaplan, Miller Ciresi law firm to bring a lawsuit against Bernatello's and Ramsey, who in 1990 had increased his ownership of Bernatello's from 50% to 60%. Restructuring of this control was central to the proposed lawsuit.
The record is not clear whether it is William Ramsay or William Ramsey. We have chosen Ramsey.
It appears that at the time of Garthe's marriage dissolution, both of the parties' family law attorneys, and Ramsey also, believed that the full value of Bernatello's was between $600,000 and $800,000. Based upon those figures, Garthe's 20% interest would have been valued at between $120,000 and $160,000.
At this time, Garthe also hired a post-decree family law attorney and a tax attorney. Garthe was advised by her husband's attorney to join in her husband's suit against Bernatello's and Ramsey. In numerous letters, Schomburg advised Garthe to protect her minority shareholder interests and not join her ex-husband in the suit.
In a post-decree motion hearing in the dissolution action, Garthe presented affidavits regarding her depressed state of mind and mental health problems due to conduct of her ex-husband. A psychologist stated that Garthe was very depressed about her relationship, but was competent to make decisions concerning the children.
In January 1994, Garthe's family law attorney sent Schomburg three fee agreements the attorney had received from Robins Kaplan, including two fee agreements for Garthe and her ex-husband, and a waiver of a conflict of interest form. In turn, Schomburg sent the fee agreements to Garthe for her review; he advised Garthe against joint representation.
In April of 1994, Garthe reviewed a proposed fee agreement drawn up by Schomburg for his representation of Garthe. Among other provisions, that agreement provided (1) that Schomburg would be entitled to one-third of the total recovery Garthe received as a result of her claims against Bernatello's and Ramsey, (2) for advice from independent counsel, (3) for monthly payments from any settlement, and (4) that payment must be made even if no lawsuit is started. Garthe took the agreement home to review and sign. Also, during that month, Schomburg requested Garthe's shareholder information from Bernatello's.
The Robins Kaplan fee agreement was used as a template when Schomburg drew up his agreement with Garthe.
In November 1994, Garthe's ex-husband moved the family court to place Garthe's stock in control of a receiver. Schomburg was present with Garthe's family law attorney at that hearing to protect her control of those stocks.
In May 1995, Garthe, represented by Schomburg, entered into a stock purchase agreement with Bernatello's and Ramsey whereby Garthe would receive $164,810.15 initially for her interests in a Bernatello's promissory note and then $550,000 for the purchase of her stock. This agreement resulted from substantial investigation and review by Schomburg of financial, business, and bank records of Bernatello's and Ramsey. On the day Garthe signed the agreement, she was accompanied by her father. Garthe and her father left Schomburg's office for several hours to discuss the agreement. The $550,000 portion of the agreement was to be paid in monthly installments for a period of five years, with a balloon payment due at the end of the five years. Under the fee agreement, Schomburg was to be paid one-third of each monthly payment and one-third of the balloon payment. As agreed, after the stock purchase agreement, Schomburg's fees would be sent directly to him from Bernatello's, unless otherwise directed. Conditions of the agreement also included Garthe's release from future liability, and her right to receive future periodic financial reports of Bernatello's business. Schomburg advised Garthe to consider having an independent accountant review the reports when they arrived. Further, the agreement provided that Schomburg had an interest as holder of an attorney's lien in all amounts payable to Garthe.
On the eve of his trial, Garthe's ex-husband settled with Bernatello's and Ramsey. The terms of that settlement are confidential.
In an April 1996 family court proceeding reducing Garthe's ex-husband's child support, the district court noted that it was reasonable for Garthe not to join in her ex-husband's settlement and that the division of property in the dissolution decree was equitable.
Payments to Schomburg under the stock purchase agreement continued without issue for nearly five years, until April 2000, just before the balloon payment was due. At that time Garthe contested the attorney fees payments. The last one-third fee contingency fee payment to Schomburg was retained in the trust account.
In response to Garthe's challenge to payment of the final fees, Schomburg filed a declaratory judgment action. Garthe counterclaimed, alleging breach of fiduciary duty, undue influence, and an ambiguous fee agreement. The district court granted Schomburg's motion for summary judgment, dismissed Garthe's counterclaims, and denied relief on Schomburg's claims that Garthe should be judicially and collaterally estopped from bringing the issues she asserts in this matter.
DECISION
On appeal from summary judgment, this court considers whether there are any genuine issues of material fact and whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). No genuine issue of material fact exists "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party." DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986)). This court views the evidence in the light most favorable to the party against whom summary judgment was granted. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).
I.
We note initially that there is no merit to Garthe's allegation that the fee agreement is ambiguous. Caselaw has repeatedly emphasized that ambiguity must be based on the language of the contract alone. See, e.g., Metropolitan Sport Facilities Comm'n v. General Mills, Inc., 470 N.W.2d 118, 123 (Minn. 1991) ("A contract is ambiguous if it is susceptible to more than one interpretation based on its language alone.") (citation omitted); Trondson v. Janikula, 458 N.W.2d 679, 681 (Minn. 1990) ("Ambiguity exists when the language of a written document, by itself, is reasonably susceptible to more than one meaning.") (citation omitted). Furthermore, contingency fee agreements are valid unless procured by fraud or otherwise unconscionable. Continental Cas. Co. v. Knowlton, 305 Minn. 201, 232 N.W.2d 789 (1975). Our thorough review of the agreement reveals no ambiguity in the language setting the one-third contingency fee arrangement.
II.
Garthe next argues that Schomburg violated his fiduciary duty by failing to bring a claim as stated in the fee agreement, and, instead, sold her shares in a purchase agreement.
[I]t is a basic rule that an attorney must represent the client with undivided loyalty and must disclose to the client any material matter which might impair that loyalty or affect the client's interests.Perl v. St. Paul Fire Marine Ins. Co., 345 N.W.2d 209, 215 (Minn. 1984). Attorneys lose their right to be compensated for their services if they breach their fiduciary duty to their clients. Rice v. Perl, 320 N.W.2d 407, 411 (Minn. 1982).
It is undisputed that Garthe and Schomburg were involved in a fiduciary relationship as attorney and client. Garthe argues that her evidence infers that Schomburg gave no consideration because of the language in the fee agreement.
Total recovery shall specifically include without limitation, recovery of any amount for my shareholder interest in Bernatello's, my noteholder interest in any loans to Bernatello's, my ownership interest in any certificate of deposit pledged as collateral for any loan * * * .
Relying on this provision, Garthe argues that Schomburg would take one-third of any recovery without any obligation on his part to bring or make a claim against Bernatello's and Ramsey. Garthe overlooks, however, another section in the fee agreement that provides that she "will pay these fees even if my claim is settled before a lawsuit is started." Therefore, the fee agreement anticipates that settlement may be reached with Bernatello's and Ramsey without the necessity of bringing a claim. Arguably, settlement of the matter at issue might reasonably be viewed as quite preferable to commencing a legal action that could be costly in terms of time and money. Clearly, the fee agreement explicitly addresses the issue of a settlement with payments spread over time when it provides:
In the event my claim is settled by an agreement which calls for an initial cash payment and additional payments over a period of time, my lawyer may decide to either: (1) be paid all of his fees from the initial cash payment based upon the present value of all payments; * * * or, (2) be paid his fees * * * out of each payment as it is received.
Garthe further alleges that Schomburg failed to fully disclose his interests in the Bernatello's transaction, deal fairly, disclose conflicts of interests, and advise Garthe to consult with independent counsel. Regarding these allegations, the district court found that there were no facts showing genuine issues for trial. We agree with the district court's determination.
The evidence indicates that appellant was fully informed through correspondence and consultation about both the one-third contingency fee agreement and the stock purchase agreement. The fee agreement is almost identical to the Robins Kaplan fee agreement that Garthe had in her possession for some time during which she was deciding whether to hire Robins Kaplan jointly with her ex-husband. Garthe also took the fee agreement home overnight before returning with it the next day signed. Cf. Evans v. Blesi, 345 N.W.2d 775, 781 (Minn.App. 1984) (finding breach of fiduciary duty where in the party charged refused claimant the opportunity to consult an attorney and used other "intimidating tactics"), review denied (Minn. June 12, 1984). Garthe does not dispute these circumstances.
Further, the fee agreement contains a provision assuring that Garthe may consult independent counsel before entering into an agreement with Schomburg. There is no evidence that Garthe lacked the opportunity to consult with independent counsel regarding the fee agreement. Id. She was represented at this time by both a tax attorney and a family law attorney. There is some evidence in the record that Garthe consulted with them regarding both the sale of the stocks and the issue of joint representation with her former husband in the Bernatello's and Ramsey suit.
There is no evidence in the record of a conflict of interest by Schomburg in regard to Bernatello's or Ramsey. The confidentiality agreement entered into between Schomburg and Bernatello's addresses only the release of financial records. It does not in any way suggest that Schomburg is an agent of Bernatello's, as Garthe claims. Also, an escrow agreement between Garthe and Schomburg, about which Garth complains, does not show evidence of conflict. Schomburg is identified in that agreement as Garthe's attorney; his interests are as the attorney lienholder, and under that agreement, any person may have the district court appoint a successor escrow agent. Cf. Miller Waste Mills, Inc. v. Mackay, 520 N.W.2d 490, 497 (Minn.App. 1994) (finding no conflict of interest and consequently no breach of fiduciary duty where shareholder's attempt to buy other shareholders' shares for less than fair value was permitted by the terms of the corporate bylaws), review denied (Minn. Oct. 14, 1994).
Finally, Garthe asserts that since her ex-husband's sale of his shares brought a higher price because he actually brought a lawsuit, she would have logically received a higher price if she actually brought a lawsuit as well. This allegation is wholly speculative. The terms of Garthe's ex-husband's settlement with Bernatello's and Ramsey are not part of the record. Also, in a post-decree family court proceeding, Garthe sought partition of the ownership of her stock from her ex-husband's stock, in part, because she was without funds and unemployed.
There is no evidence that the fee agreement was ambiguous or that Schomburg breached his fiduciary duty. Therefore, the district court correctly granted summary judgment for Schomburg on this issue.
III.
Garthe next argues that by taking advantage of her vulnerabilities and mental condition, Schomburg improperly influenced her to enter into both the fee agreement and the stock purchase settlement. To prove undue influence, a person must cease to act by his or her own volition and become a mere puppet of another. In re Estate of Prigge, 352 N.W.2d 443, 445 (Minn.App. 1984). The party claiming undue influence bears the burden of establishing it. In re Estate of Olsen, 357 N.W.2d 407, 411 (Minn.App. 1984), review denied (Minn. Feb. 27, 1985). Undue influence must be proven by clear and convincing evidence. In re Estate of Pundt, 280 Minn. 102, 104, 157 N.W.2d 839, 841 (1968).
Here, although the record indicates that Garthe was depressed and under stress during her protracted and acrimonious dissolution and post-dissolution proceedings, and that there is no dispute that Schomburg was aware of her condition, Garthe has presented no evidence to indicate that she was unable to act of her own volition. There is no evidence that Garthe was incompetent, that she was intimidated, or that she did not understand the fee agreement or the stock purchase settlement at the time she entered into them. The evidence, in fact, indicates otherwise. Garthe acknowledged the fee agreement and the stock purchase settlement when she testified at her deposition during the motion to modify child support. She adhered to and complied with the provisions of the fee agreement throughout nearly five years before contesting payment of sums due Schomburg pursuant to the final balloon payment. Additionally, Garthe does not dispute the considerable time and negotiation which underlay both the completion of the stock purchase agreement with Bernatello's and Ramsey and the signing of that agreement. Where, as here, the party agreed to the contract with knowledge of all the facts, an attorney's advice, a savvy businessperson's advice, and sufficient time to think about the decision, a claim of duress must fail. St. Louis Park Inv. Co. v. R.L. Johnson Inv. Co., 411 N.W.2d 288, 291 (Minn.App. 1987), review denied (Minn. Oct. 30, 1987); Kroeplin v. Haugen, 390 N.W.2d 872, 875 (Minn.App. 1986) (pressure on party to reach dissolution agreement did not amount to duress in light of lengthy period of negotiations), review denied (Minn. Sept. 25, 1986). Therefore, Garthe's claims of duress fails.
Further, Garthe, in arguing undue influence by Schomburg, unreasonably relies solely on her affidavit describing her depressed emotional state. See Fahrendorff v. North Homes, Inc., 597 N.W.2d 905, 912 (Minn. 1999) (affidavits are insufficient to raise a question of a material fact if they merely state conclusions without providing a basis for the affiant's knowledge). The district court properly awarded summary judgment to Schomburg on Garthe's claim of undue influence.
IV.
Schomburg argues that because Garthe, in post-decree family court proceedings, recognized her obligations under her agreement with him, the district court erred in denying his claims that Garthe should be judicially and collaterally estopped from bringing her counterclaims. Because of our resolution of the summary judgment issues, we need not address Schomburg's estoppel arguments. We do note, however, that Minnesota has yet to recognize judicial estoppel. See State v. Profit, 591 N.W.2d 451 (Minn. 1999). With regard to collateral estoppel, even though Garthe recognized her obligation to Schomburg in a post-decree dissolution matter, the issues before the family court were not the same as those involved here. See Goldberger v. Kaplan, Strangis Kaplan, P.A., 534 N.W.2d 734 (Minn.App. 1995) (holding that collateral estoppel does not apply where the issues have not been previously litigated), review denied (Minn. Sept. 28, 1995).
The district court properly granted summary judgment on Schomburg's declaratory judgment action seeking final payment on sums due under his fee agreement with Garthe. The fee agreement is not ambiguous, and there are no material fact questions in regard to Garthe's claims of breach of fiduciary duty or undue influence.