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A client was not required to seek recovery from an apparently impecunious third party in order to reduce the financial impact of her lawyer's malpractice, the Idaho Supreme Court decided April 26 (McCormick International USA Inc. v. Shore, Idaho, No. 38454, 4/26/12).
Information in the record about the third party's finances showed that the client acted reasonably in not suing him and pushing through a forced sale of his assets, the court concluded.
Nicholas Bokides represented Roberta Shore in a divorce action in which her husband, William Shore, received all interest in the couple's business, Bear River Equipment Inc.
In better times, Roberta had executed a personal guarantee in favor of McCormick International USA Inc. for its ongoing advances to Bear River. During the divorce action, she instructed Bokides to notify McCormick that she would no longer guarantee Bear River's liabilities.
Nearly 10 months after the divorce, Roberta received notice from McCormick that it intended to enforce her personal guarantee as to certain financed farm equipment. She contacted Bokides and learned that he had failed to notify McCormick that Roberta was terminating the guarantee.
When McCormick sued Bear River, William, and Roberta, she joined Bokides as a third-party defendant, asserting a cause of action against him for malpractice.
The lawyer admitted that he had breached his professional duties to Roberta, but asserted as a defense that Roberta failed to mitigate her damages. He claimed that Roberta had a duty to enforce the divorce decree's mandate that William hold her harmless from all Bear River debts.
At trial, Roberta testified that because she had been married to William and had acted as the couple's bookkeeper until their recent divorce, she was aware that he had very few assets and faced significant liabilities. William testified too, saying that the value of his assets was insufficient to reach a settlement with McCormick, much less satisfy McCormick's claim in full.
The trial court found that Roberta reasonably believed that William was judgment proof, and therefore that she acted reasonably in declining to sue her former husband to enforce the indemnity provision in their divorce decree.
Finding that Bokides should have given the required notice to McCormick at least by the time of the divorce decree, the trial court concluded that Bokides was liable to Roberta for damages in the entire amount that McCormick had advanced to Bear River after the divorce decree, to the tune of $299,085.53.
Bokides appealed the trial court's finding that Roberta had not failed to mitigate her damages. In an opinion by Justice Joel D. Horton, the supreme court affirmed.
The court observed that the doctrine of avoidable consequences, or the duty to mitigate, is an affirmative defense that reduces a plaintiff's damages where a defendant proves that it would have been reasonable for the plaintiff to take steps to avoid the full extent of the loss caused by the defendant's conduct. The doctrine seeks to discourage persons against whom wrongs have been committed from passively suffering economic loss that could be averted by reasonable efforts, Horton explained.
The defendant bears the burden, the court continued, of proving that the proposed means of mitigation were reasonable under the circumstances, could be accomplished at reasonable cost, and were within the plaintiff's ability. The defendant must establish both that means of mitigation existed and that the proposed course of mitigation would in fact have resulted in a reduction of the plaintiff's damages.
“The adage that one cannot get blood from a turnip is applicable to this appeal,” Horton wrote. Even though Roberta had a legal right to indemnification from William, he said, the trial court's finding on the mitigation of damages defense must be affirmed if a reasonable person could conclude that William was indeed judgment proof or that any recovery from him would have been offset by the cost of suing him.
Reviewing the record, the court noted that William's financial statement showed liabilities of over $2 million and a net worth of $230,920. Although Bokides contended that the statement exaggerated William's liabilities and understated his assets, the court pointed out that both Roberta and William testified that if she sued him and forced a sale of his assets, the proceeds from the sale would be substantially less than the assets listed on the statement. And a lawsuit would have caused Roberta to incur attorneys' fees and costs, Horton noted.
On this record, the court concluded, there was substantial evidence to support the trial court's finding that Roberta acted reasonably in not pursuing legal action against William to enforce the indemnification provision in the divorce decree.
The court declined to address whether, as Bokides claimed, Roberta's attorney in the McCormick litigation had a conflict of interest because he also represented William in the action. That point, Horton said, is irrelevant to the pivotal question of whether Roberta actually could have obtained relief had she enforced the divorce decree against William.
Bradley J. Williams of Moffatt, Thomas, Barrett, Rock & Fields, Idaho Falls, Idaho, argued for Bokides. James G. Reid of Ringert Law in Boise, Idaho, argued for Shore.
Full text at http://op.bna.com/mopc.nsf/r?Open=kswn-8tvq65.
Copyright 2012, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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