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Archive for the ‘Contract Law’ Category

Thorn v. Pierson, No. CA10-229.

In 2002, Noble Vance Pierson was a woman in her seventies with a sizable estate and three children, Dale, Leslie, and Sandra. One of the brothers, Leslie, lived in a trailer on Mrs. Pierson’s three-acre home property, and she intended that he should receive that property upon her death. Mrs. Pierson told her daughter, Sandra Thorn, that she wished to have her real property settled and divided. Sandra suggested that she purchase the land for $100,000, which would constitute Dale’s share of the property. Mrs. Pierson agreed and later signed a deed to that effect. The purchase price of $100,000 was placed in a certificate of deposit to be given to Dale upon Mrs. Pierson’s death.

At some point later, Mrs. Pierson sued Sandra to have the deed cancelled. At trial, Mrs. Pierson testified that she did not have a good understanding of legal issues and relied upon her daughter to help her with them. The trial court found that Sandra was the dominant party in a confidential relationship with her mother. Under Arkansas law, this gave rise to a rebuttable presumption that Sandra had used undue influence to procure the deed. The trial court then found that there was insufficient evidence to overcome the rebuttable presumption and cancelled the transaction.

On appeal, the Arkansas Court of Appeals noted that Mrs. Pierson testified at trial that (1) she was an independent woman, (2) she handled her own affairs, (3) she negotiated the purchase of her SUV, and (4) she was familiar with real estate transactions, easements, and leases of mineral rights. The court further noted that Mrs. Pierson corrected an attorney regarding a bequest in her will. She noted the bequest was not merely to her son, but also to “the heirs of his body.” That court stated that this understanding showed Mrs. Pierson was not compelled to rely on her daughter in legal matters.

Accordingly, the court held that (1) Sandra was not the dominant party in a confidential relationship and (3) she did not procure the deed by the exercise of undue influence.

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Tim McCollough sued Johnson, Rodenburg & Lauinger, a debt-collection law firm, for pursuing his credit card bet after the statute of limitations had expired. McCollough claimed that he and his wife fell behind in paying their credit card bills after he suffered a brain injury while working as a school custodian and his wife underwent surgery. He stopped making payments on his account with Chase Manhattan Bank in 1999 when there was an unpaid balance of about $3,000. In 2005, another debt-collection agency sued McCollough, but the lawsuit was dismissed because the five-year statute of limitations had already expired.

Johnson, Rodenburg & Lauinger then became involved and were incorrectly informed that McCollough had paid $75 on his account in 2004, effectively resetting the clock to run through 2009. The 2004 activity was not a payment; however, it was the return of court costs to the other debt-collection agency for an earlier attempt to pursue McCullough’s debt. No one at Johnson, Rodenburg & Lauinger requested documentation of the activity. Instead, the firm simply sued McCullough in 2007 for about $10,000. In his pro se answer to the complaint, McCullough again wrote that the statute of limitations had expired:

FORGIVE MY SPELLING I HAVE A HEAD INJURY AND WRITING DOSE NOT COME EASY. THE STACUT OF LIMITACION’S IS UP, I HAVE NOT HAD ANY DEALINGS WITH ANY CREDITED CARD IN WELL OVER 8½ YEARS.

McCullough eventually retained a lawyer, and Johnson, Rodenburg & Lauinger dismissed the suit with prejudice. He then filed suit against the firm, claiming it had violated the federal and state fair debt laws, as well as state torts of malicious prosecution and abuse of process. A Montana jury ordered Johnson, Rodenburg & Lauinger to pay Tim McCollough $250,000 in damages for emotional distress. The trial court refused to reduce the award or give Johnson, Rodenburg & Lauinger a new trial.

On appeal, the Ninth Circuit Court of Appeals found that Johnson, Rodenburg & Lauinger filed an average of five collection lawsuits a day in Montana between January 2007 and July 2008, which amounted to about 2,700 total. On one day, the North Dakota firm filed 40 lawsuits. About 90% of the firm’s suits end in a default judgment. The court affirmed the trial court’s ruling, noting that the
firm’s error was its own to prevent.

For the full story, click here.

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Harrill & Sutter, PLLC v. Kosin, No. 10-518.

Facts

Cynthia Kosin’s husband, John Robert Kosin, died in March 2003. At the time of his death, Mr. Kosin resided in Arkansas, his estate included properties and business interests in several states, and he has numerous tax difficulties. Under the will, Mrs. Kosin was to receive (1) all of her husband’s household property and personal effects, (2) annual payments of $525,000 for life, and (3) a life estate in their Hot Springs home. The will provided several other bequeathed gifts to friends and left the remainder of the estate to St. Luke’s Episcopal Church. The will named Stephen Butler of Virginia as executor of the will and trustee of the estate. Melanie Grayson of Arkansas was later appointed as administratrix of the Arkansas estate.

On May 23, 2003, Mrs. Kosin engaged Raymond Harrill to represent her in regard to her rights to inherit from her husband’s estate. Because of the complexity of Mr. Kosin’s estate, Harrill requested the assistance of his partner, Luther Sutter. Mrs. Kosin entered into a contingency-fee agreement under which the firm was to receive either (1) 20% of the gross amount recovered from the estate through settlement or (2) 30% if a lawsuit was necessary.

From June 2003 through July 2005, Sutter requested information from Butler, attempting to obtain a complete financial picture of Mr. Kosin’s companies. On November 11, 2003, Butler informed Sutter by letter that he had entered into a contract to sell Mr. Kosin’s businesses for $39.4 million with a contingency clause that allowed Butler to be released if he deemed the sale inadequate. Butler also provided Sutter with an appraisal of the Hot Spring home, which indicated a value of $2.9 million. Butler indicated he would be willing to settle Mrs. Kosin’s interests if she sold the home. Under this offer, Mrs. Kosin would retain the proceeds of the sale free of Mr. Kosin’s estate less (1) the expense of the sale, (2) settlement with St. Luke’s, (3) payment of any indebtedness or taxes for the home, and (4) payment of the expenses of the administration of the Arkansas estate. The offer would likely have resulted in Mrs. Kosin receiving in excess of $1 million.

Sutter forwarded a copy of Butler’s November 11, 2003, letter, but did not explain the terms of the offer. In September 1, 2004, Mrs. Kosin retained Friday, Eldredge & Clark. After learning this, Sutter advised Mrs. Kosin of the $1 million settlement offer and noted that he learned of the offer from Grayson instead of Butler. Later that month, Mrs. Kosin discharged Harrill & Sutter.

On February 10, 2006, Harrill & Sutter filed suit to enforce an attorney’s lien to protect its claim for attorney’s fees and services rendered on behalf of Mrs. Kosin. The firm alleged that Mrs. Kosin breached the contingency-fee agreement and requested $75,000. Mrs. Kosin responded that she was justified in terminated the attorney-client relationship. After the sale of the Hot Springs home, Mrs. Kosin deposited $225,000 into a bank account pending resolution of the case.

After a bench trial, the trial court ruled that Mrs. Kosin discharged Harrill & Sutter for cause. Because Mrs. Kosin agreed that (1) Harrill & Sutter had provided valuable services for her benefit until November 19, 2003, and (2) those services and fees equaled $55,775.44 (based on Harrill & Sutter’s itemized professional services invoice), the trial court awarded Harrill & Sutter that amount pursuant to a quantum-meruit recovery. The trial court further ordered Harrill & Sutter to received 25% of the interest accumulated on the $225,000 sum since it was deposited.

Appeal

The Arkansas Supreme Court noted that attorney-client contracts contain an implied provision allowing the client to discharge the attorney at any time, with or without cause. If the attorney is discharged without cause, he is to be compensated based upon the terms of the fee agreement. If the attorney is discharged with cause, her compensation is determined by quantum meruit. Although there is no bright-line rule for determining whether a client has discharged an attorney with cause, the court held that the trial court did not err in finding that Mrs. Kosin discharged Harrill & Sutter for cause. The court then held that the $55,775.44 award was reasonable based on Harrill & Sutter’s time and services.

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John T. Jones Construction Co. v. Hoot General Construction Co., Inc., No. 09-1493.

Facts

The Des Moines Metropolitan Wastewater Reclamation Authority (“WRA”) solicited bids for restoration of one of its wastewater treatment facilities. The project specifications required that liners be installed in the wastewater holding tanks to prevent erosion of the concrete interiors of those tanks. The project specifications named a specific liner system by Linabond, followed by the words “or equal.” WRA had authority to determine whether another liner system was equal to Linabond.

John T. Jones Construction Co. (“Jones”), a general contractor, contacted Hoot General Construction Co., Inc. (“Hoot”), a subcontractor specializing in installation of protective lining in wastewater storage tanks by Linabond’s main competitor, Ameron, to request a subcontractor bid for the project. Hoot noted the “single source” specification for Linabond and informed Jones that it would be proceeding under the “or equal” basis if it bid for the project. After receiving assurances from Hoot that Ameron was considered equal to Linabond in the industry and has never been rejected as “or equal” on a project, Jones used Hoot and submitted the main bid for the project. Jones was awarded the project.

Jones then forwarded Hoot its standard subcontract form, which incorporated the main contract as an exhibit. Hoot altered the subcontract to add language basing compensation on actual square footage installed instead of Hoot’s estimates in the bid. Hoot sent the signed contract, with alteration, to Jones. Under its company policy, Hoot also intended to incorporate its original bid into the subcontract, but did not do so before the subcontract was mailed. A few days later, the error was discovered. Hoot faxed its bid to Jones and asked that it be attached as an exhibit to the subcontract. Hoot also contacted Jones by telephone to ask that the additional exhibit be attached. Jones signed and returned the subcontract to Hoot, but the subcontract was never attached as an exhibit. Hoot did not pursue the matter further and continued to fulfill the other requirements of the subcontract.

Once WRA learned that Jones and Hoot intended to install Ameron liner system, it rejected that system as not meeting the specifications. Both Jones and Hoot attempted to convince WRA that the Ameron system was an acceptable equivalent, but WRA would not accept it.

Because of this impasse, Jones wrote to Hoot about an upcoming milestone date that would trigger liquidated damages for Jones under the general contract if the liner system was not installed by that time. Jones informed Hoot that Hoot would be responsible for those damages. Hoot argued that its bid had been incorporated into the subcontract and WRA’s wrongful rejection of the Ameron liner system prevented Hoot’s performance. Jones responded that Hoot was responsible for installing a liner in accordance with the main contract and that Hoot would be responsible for the costs Jones incurred for installation.

Soon after, Jones entered into another subcontract for installation of a Linabond system. Jones then filed suit against Hoot for breach of contract. After a bench trial, the trial court awarded compensatory damages, attorney fees, and court costs to Jones. Hoot appealed, arguing that its bid had been incorporated into the subcontract.

Appeal

The Eighth Circuit Court of Appeals noted that several offers and counteroffers were made in this case. The court found that no contract existed when Jones returned the executed subcontract to Hoot with Hoot’s modified language included but not its bid as an exhibit. Instead, Jones had rejected inclusion of the bid as an exhibit and had issued a counteroffer to Hoot to proceed without the exhibit. Hoot accepted Jones’s counteroffer by continuing to perform the other requirements of the subcontract.

Further, because Hoot had never had another Ameron liner system rejected as equal to Linabond during its twenty-five years of work, the court stated that Hoot intended to be bound to the subcontract, believing that the risk of rejection was negligible.

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Butcher v. Beatty, No. 09-1169.

Thelma and John Healy were married in 1979. In 2006, a trial court found that Thelma was incapacitated and appointed Troy Butcher as guardian of Thelma’s person and Butcher and John as co-guardians of her estate. Butcher later filed a motion to sell the couple’s rental property held as tenants by the entirety, and the trial court that the real property be sold and the proceeds divided between Thelma and John. The rental property could not be sold for the appraised value, so the trial court ordered Thelma to pay John $40,000 for sole ownership of the property. A deed to that effect was drafted and signed by Butcher as Thelma’s guardian. Before John could sign the deed, he passed away.

Believing that John’s death vested sole title to the rental property in Thelma, Butcher refused to pay the $40,000 to Diane Beatty, executor of John’s estate. Beatty sued Butcher to compel specific performance of the agreement, and the trial court agreed, ordering Butcher to pay John’s estate $40,000. Butcher appealed to the Arkansas Court of Appeals, who affirmed the trial court’s decision. Butcher then requested review of the decision by the Arkansas Supreme Court, and the court accepted the case for review.

The court noted that, at the time of John’s death, Thelma and John held the rental property as tenants by the entirety. As such neither spouse owned an undivided one-half interest in the property, and both owned the entire estate with the right of survivorship. This right of survivorship to the whole could be dissolved only by (1) a divorce proceeding, (2) death, (3) voluntary action of both parties. Because John had not executed the deed prior to his death, it was not fully executed and delivered; therefore, the rental property was held by Thelma and John as husband and wife, and she became sole owner upon his death.

The court further explained that specific performance is not available if performance is impossible. Upon John’s death, his estate no longer had any interest in the rental property from which to compel Butcher to perform under the previous agreement.

The court then remanded the case for further proceedings.

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Fireman’s Fund Insurance Company v. Care Management, Inc., No. 09-662.

In June 2006, Care Management, Inc. (“Care Management”), was sued for negligence, medical malpractice, and wrongful death. In September 2008, Care Management’s attorney notified Care Management’s insurers that the case was set for trial on October 7, 2006, provided them with a copy of the complaint, and inquired about coverage. This letter was the insurers’ first notice of the claim.

On October 29, 2008, the insurers filed a declaratory judgment action against Care Management in federal court. The insurers later filed a motion for summary judgment, which prompted the trial court to enter a certification order to the Arkansas Supreme Court because in many cases the Eighth Circuit Court of Appeals has interpreted Arkansas law as not requiring an insurer to show prejudice from the delay in notice. In its most recent opinion, however, the Eighth Circuit noted that state law was unclear.

The Arkansas Supreme Court explained that whether a showing of prejudice is necessary depends on whether the notice requirement is a condition precedent for coverage. If the notice requirement is a condition precedent, then the insured must strictly comply with it or forfeit coverage. The insurance company does not have to show any prejudice from the insured’s failure to provide timely notice. If the notice requirement is not a condition precedent, on the other hand, the insurer must show prejudice from the insured’s failure.

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Elder Construction Co. v. Ivey Lane, LLC, No. CA09-63.

In 2003, Elder Construction Company (“Elder”) and Ivey Lane, LLC (“Ivey Lane”), entered into a contract for Elder to purchase sixteen unimproved residential lots in the Enclave Subdivision of Springdale from Ivey Lane for a total purchase price of $1,282,400. Each of the lots available in the subdivision were listed in the contract with its individual price, ranging from $77,500 to $84,900 depending on the lot’s size, location, and topography. Elder determined which of the sixteen lots its would purchase from this list.

Under the contract, Elder was to purchase the sixteen lots in four separate closings that were scheduled to occur every six months until all of the sixteen  lots had been purchased. Elder purchased twelve lots during the first three closings, but did not appear for the fourth closing for Lots 2 ($77,500), 9 ($84,900), 12 ($84,900), and 46 ($77,500). Ivey Lane was able to sell Lot 46 to a third-party for $77,500. Ivey Lane then filed suit against Elder requesting specific performance for Elder’s breach of contract related to Lots 2, 9, and 12.

At trial, the primary dispute between the parties was whether the contract was severable into sixteen different contracts. Ivey Lane contended that the lots (1) were not physically or topographically identical (2) were independently priced based on their desirability. Elder admitted that each of the lots were different and individually priced, but argued that the contract was not severable based on the total purchase price for the lots. The trial court found that (1) Elder breached the contract with Ivey Lane, (2) the contract was severable, (3) Ivey Lane did not have an adequate remedy at law, and (4) Ivey Lane was entitled to specific performance. The trial court ordered Elder to purchase Lots 2, 9, and 12 at the prices listed in the contract within sixty days. The trial court also dismissed Elder’s counterclaim.

On appeal, Elder argued that the trial court incorrectly found that the contract was severable. The Arkansas Court of Appeals quoted previous precedent as follows:

Where the price to be paid is clearly and distinctly apportioned to different parts of what is to be performed, although the whole is in its nature single and entire, the contract is severable.

The court noted that, even though the contract contained a total price for the sixteen lots, both parties agreed that each of the lots was different and individually priced. Accordingly, the court held that there was sufficient evidence to support the trial court’s finding that the contract was severable.

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