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P. Bohna et al v. Allstate Ins. et al (3/27/92), 828 P 2d 745
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Notice: This is subject to formal correction before
publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors
to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, in order that
corrections may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
PHILLIP BOHNA, )
) Supreme Court No. S-3845
Appellant, )
) Trial Court No.
v. ) 3AN-87-12073 Civil
)
HUGHES, THORSNESS, GANTZ, )
POWELL & BRUNDIN, and ) O P I N I O N
ALLSTATE INSURANCE COMPANY, )
)
Appellees. ) [No. 3824 - March 27, 1992]
______________________________)
)
ALLSTATE INSURANCE COMPANY, ) Supreme Court No. S-3846
)
Cross-Appellant, )
)
v. )
)
PHILLIP BOHNA, and HUGHES )
THORSNESS, GANTZ, POWELL )
& BRUNDIN, )
)
Cross-Appellees. )
______________________________)
)
HUGHES, THORSNESS, GANTZ ) Supreme Court Nos. S-3897/3903
POWELL & BRUNDIN, )
)
Cross-Appellant, )
)
v. )
)
PHILLIP BOHNA, and ALLSTATE )
INSURANCE COMPANY, )
)
Cross-Appellees. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Karen L. Hunt,
Judge.
Appearances: Mark A. Sandberg, Sandberg
& Smith, and J. Douglas Burke, Law Offices of
J. Douglas Burke, Anchorage, for Appellant
and Cross-Appellee Bohna. Ronald L. Bliss,
Jean E. Kizer, Bradbury, Bliss & Riordan,
Anchorage, for Appellee and Cross-Appellant
Allstate. Stephen S. DeLisio, Staley,
DeLisio, Cook & Sherry, Inc., Anchorage, for
Appellee and Cross-Appellant Hughes
Thorsness.
Before: Rabinowitz, Chief Justice,
Matthews, Compton, and Moore, Justices.
[Burke, Justice, not participating.]
MATTHEWS, Justice.
COMPTON, Justice, concurring.
INTRODUCTION
These appeals arise from judgments in an attorney
malpractice case and a related indemnity claim. The jury
returned a verdict setting damages suffered by plaintiff Phillip
Bohna and assigning fault among: 1) Allstate Insurance Company
(Allstate), 2) Hughes, Thorsness, Gantz, Powell & Brundin (HT),
and 3) Bohna himself. The superior court entered two judgments
on the verdict. The principal judgment was in favor of Bohna and
against HT. The other judgment was on Allstate's cross-claim for
indemnity and was in favor of HT and against Allstate.
The basis of the malpractice claim was HT's handling of
Bohna's defense after Bohna was involved in an automobile
collision which resulted in catastrophic injuries to the other
driver. The crux of Bohna's complaint is that in order to save
money for Allstate, HT pursued a strategy of making offers of
judgment in excess of policy limits under Alaska Civil Rule 68
instead of settling the case within insurance policy limits.
This strategy, approved by Allstate and agreed to by Bohna,
caused Bohna to incur a large uninsured judgment.
Bohna sued both Allstate and HT. Before trial,
Allstate settled with Bohna for $1 million. They also entered
into a "loan receipt agreement"under which Allstate loaned Bohna
$3 million, which would be repayable out of (and to the extent
of) any recovery Bohna might obtain in his suit against HT.
After the settlement, Allstate cross-claimed against HT for
indemnity.
The jury returned a verdict of approximately $6 million
for Bohna. Based on its interpretation of the law and the
agreements between Bohna and Allstate, the trial court reduced
the verdict by the $1 million settlement and part of the $3
million loan. The court also deducted 15% for Bohna's negligence
and failure to mitigate damages, as found by the jury. Finally,
in accord with a pretrial ruling that comparative indemnity
principles do not apply in Alaska, the court entered judgment in
HT's favor on Allstate's cross-claim because the jury also found
Allstate partially at fault.
On appeal the parties dispute the validity of the loan
receipt agreement and to what extent -- if any -- it should
result in a setoff. Also disputed are the alleged assignment of
Bohna's malpractice claim, the propriety of the jury's
consideration of the issues of Bohna's failure to mitigate
damages and contributory negligence, the sufficiency of the
evidence relating to an attorney's standard of care, the court's
allocation of peremptory challenges, the exclusion of certain
evidence, various jury instructions, and the award of costs and
attorney's fees. With regard to Allstate's failed indemnity
claim, the issues are whether the trial court erred by ruling
that Allstate had to be found fault-free to recover, denying
Allstate's motion to amend its cross-claim, and refusing to allow
the jury to decide if Allstate breached its covenant of good
faith and fair dealing.
For the reasons set forth below, the Bohna judgment is
reversed and remanded with direction to enter an amended judgment
in Bohna's favor. The HT judgment is affirmed.
FACTS AND PROCEEDINGS
The Underlying Case
In 1981 Phillip Bohna was involved in a collision which
left the driver of the other car, Anthony Stevens, brain damaged
and quadriplegic. During the course of the ensuing litigation,
it became clear that the liability picture did not look good for
Bohna.1
Only seventeen at the time of the accident, Bohna had
no significant assets of his own. However, he was covered by his
father's automobile liability insurance policy with Allstate.
That policy provided for $50,000 bodily injury liability coverage
plus unlimited coverage for prevailing party's attorney's fees
under Alaska Civil Rule 82.
We note, in order to set the context of this case, that
under Civil Rule 82 attorney's fees are awarded to the prevailing
party as a matter of course. Civil Rule 82 establishes a fee
schedule based on the size of the judgment and the extent to
which the suit was contested before entry of judgment.2 In cases
of catastrophic injury and low bodily injury insurance limits, it
is not unusual for insurance companies to be liable for more in
court awarded attorney's fees than for the bodily injury limits.
Thus if there is a $3 million verdict, an insurance company, with
coverage such as that provided by Allstate in this case, would
generally be liable to pay $50,000 for bodily injury liability
coverage, plus approximately $300,000 as court awarded attorney's
fee coverage.3 E.g., Schultz v. Travelers Indem. Co., 754 P.2d
265, 266 n.1 (Alaska 1988) (attorney's fees of approximately
$359,000 awarded for the death of one passenger against an
insurance company which had bodily injury limits of $100,000 per
passenger); McDonough v. Lee, 420 P.2d 459, 465 n.22 (Alaska
1966) (collectability of the entire judgment not relevant to an
award of attorney's fees under Civil Rule 82); Liberty National
Ins. Co. v. Eberhart, 398 P.2d 997 (Alaska 1965) (insurance
company's liability for attorney's fees not limited to pro-rata
share based on ratio of judgment to policy limits). The total
policy limits in this example would therefore be approximately
$350,000. Id.
The dispute between Bohna and Stevens ultimately came
down to the question of how much was available under the policy's
unlimited coverage for attorney's fees. Stevens hired attorney
Ray Nesbett to represent him. Nesbett and an Allstate claims
manager discussed a possible settlement, but they could not come
to terms.4 Stevens sued Bohna on August 16, 1983. Allstate
retained James Powell, a partner at HT, to defend Bohna.
Powell offered Nesbett $50,000 for Stevens' bodily
injury. However, Nesbett and Powell disagreed on the proper size
of the Civil Rule 82 attorney's fee for which Allstate was liable
under the policy. Nesbett valued the case at between $3 and $10
million and insisted that attorney's fees would be 10% of that
amount under Civil Rule 82. Powell believed that the value of
the case was lower and that Civil Rule 82 fees would be lower
than 10% unless there was a trial.5 Because Nesbett did not
believe that Powell's offer included all money available under
the Allstate policy, it was rejected.
In late 1983, Powell proposed that Bohna make offers of
judgment under Civil Rule 68 that exceeded policy limits.6 Bohna
was told that he could consult with independent counsel at
Allstate's expense, and that Allstate would pay Bohna's
attorney's fees and costs relating to his bankruptcy proceeding
if he agreed and an offer was accepted. After consulting with
attorney Hugh Wade, Bohna agreed to a $500,000 offer of judgment.
Allstate made such an offer7, but Nesbett rejected it. Powell
next suggested increasing the offer to $1 million to put more
pressure on Nesbett to settle. Powell again advised Bohna of his
right to consult with independent counsel at Allstate's expense,
but Bohna indicated that, if he went into bankruptcy, it did not
matter by how much. Bohna, therefore, never went back to consult
with Wade on excess offers of judgment. He agreed to the $1
million offer of judgment. Nesbett refused the offer. After the
$1 million offer of judgment was refused, Powell filed an answer
on Bohna's behalf, thus formally contesting Stevens' claim.
Under the Civil Rule 82 fee schedule, this raised the awardable
attorney's fees on offers of judgment.8 Thus, offers of judgment
apparently became less attractive to Allstate, and Allstate made
no more offers for the next two years. Instead, normal discovery
took place.
In September 1986, Nesbett offered to settle for
$350,000. This offer remained open for fifteen days. On
September 15, a new Civil Rule 82 schedule took effect, lowering
the maximum applicable percentage for fees "without trial" from
7.5% to 2%.9 Powell believed that the new schedule applied, and
he believed that $350,000 was in excess of policy limits.
Allstate did not accept Nesbett's offer. At this point Powell
considered the verdict value of the case to be between $3 and $6
million, with $3 million being most likely. Powell suggested
that Bohna make a $2 million offer of judgment. Allstate agreed,
and Bohna signed a form authorizing up to a $3 million offer of
judgment. The $2 million offer of judgment, like the others, was
rejected by Nesbett.
Finally, in October 1986, Powell proposed a $3 million
offer of judgment, which was agreed to by Allstate. At this
point, Nesbett felt that it was possible that Stevens might
obtain a less favorable judgment if he went to trial. If this
were to happen, not only would Stevens be ineligible to recover
his attorney's fees incurred after the offer was made, but he
also would be responsible for such fees to HT.10 Nesbett
therefore accepted this offer, and on October 30, 1986, judgment
was entered against Bohna (the Stevens judgment). With
prejudgment interest, it amounted to over $4.6 million.11
In October 1987, Bohna began bankruptcy proceedings.
Nesbett then informed Bohna's bankruptcy attorney, William Pace,
that the Stevens judgment might not be dischargeable because
alcohol was involved in the accident. Eventually, Bohna and
Stevens reached an agreement. Bohna agreed to terminate
bankruptcy proceedings and file suit against Allstate and HT.
Stevens agreed not to execute on his judgment while Bohna's suit
was pending.
The Current Litigation
Bohna sued Allstate and HT claiming negligence, breach
of fiduciary duty, and breach of the covenant of good faith and
fair dealing. He sought over $6 million in compensatory damages
and over $12 million in punitive damages. Allstate cross-claimed
against HT, seeking indemnity for any liability Allstate might
have to Bohna arising out of HT's actions.
In August 1989, the trial court ruled that Allstate had
breached its implied covenant of good faith and fair dealing, as
a matter of law, by authorizing offers of judgment in excess of
policy limits. After this ruling, Allstate and Bohna settled.
The settlement included a $1 million payment by Allstate to Bohna
and a "loan receipt agreement"(LRA) whereby Allstate loaned
Bohna $3 million to be repaid out of any recovery Bohna might get
from his suit against HT.12 In exchange Bohna released Allstate
from all liability to Bohna. In addition, Bohna agreed not to
dismiss his case against HT without Allstate's written consent.13
A week after reaching these agreements, Allstate moved
for leave to amend its cross-claim against HT to assert various
direct causes of action. The trial court denied this motion,
reasoning that the motion was too late and that it would
prejudice HT by requiring additional discovery just weeks before
trial. At a hearing a few days later, the court made an oral
ruling that Allstate's cross-claim against HT for indemnity would
be barred if Allstate were found to have any fault for Bohna's
damages.
The case was tried before a jury which returned a
verdict finding all three parties partially at fault for Bohna's
damages. On a special verdict form, the jury allocated fault
among the parties as follows: Bohna -- 15%, HT -- 34%, Allstate
-- 51%. Bohna's damages were found to be "the value of [the
Stevens] Judgement plus interest and costs." The jury found that
Bohna failed to mitigate his damages and this failure on his part
was responsible for 15% of the loss. The jury also found that
punitive damages were not appropriate. As a result of the jury
having found Allstate partially responsible for Bohna's damages,
the trial court entered final judgment against Allstate on its
cross-claim for indemnity (the HT judgment).
In February 1990, the trial court issued an order
calculating the judgment on Bohna's claim against HT. The court
began by translating the jury's verdict into the numerical figure
of $6,139,544.94.14 After deducting $1 million paid by Allstate
under the settlement agreement and some $920,000 as the result of
Bohna's failure to mitigate his damages (leaving some $4.2
million), the court then explained how it dealt with the $3
million paid under the LRA. Although the court's explanation is
complicated, it rests on the following premise: whatever Bohna
does not have to repay to Allstate from the $3 million loan is
"consideration" for Bohna's release of Allstate and is thus
deductible from the verdict under former AS 09.16.040(1). These
deductions ultimately resulted in a final judgment against HT of
$902,000.15 plus fees and costs (the Bohna judgment).
DISCUSSION
A. CALCULATION OF JUDGMENT
Since many of the contentions of the parties in this
case involve the deductions which the trial court made from
Bohna's judgment against HT, an explanation of those deductions
is necessary.
$6,139,544.94 = Verdict before deductions.
-920,931.74 = 15% comparative fault allocated to Bohna.
-1,000,000.00 = Settlement paid Bohna by Allstate.
$4,218,613.20 = Subtotal.
$4,218.613.20
x.34 = Percentage of fault jury found
belonged
$1,434,328.41 to HT.
$3,000,000.00 = Amount of "loan."
-1,434,328.41 = Amount of verdict that equals HT's percent of
fault.
$1,565,671.59 = Amount of "loan" forgiveness received by
plaintiff which is additional consideration
paid by Allstate for the release.
$4,218.613.20 = Amount of verdict after undisputed setoff and
plaintiff's mitigation damages are deducted.
-1,565,671.59 = Additional consideration received by
plaintiff from Allstate for release.
$2,652,941.61 = Verdict, after plaintiff's claim is reduced
for amounts received by him from Allstate.
x.34 = Percentage of fault of HT.
$902,000.15 = Amount of plaintiff's uncompensated claim for
which HT is responsible.
1. Deduction for Percentage of Fault Attributed to HT.
The trial court reduced HT's liability in accordance
with its percentage of fault. The trial court apparently applied
the current version of AS 09.17.080(d).15 However, the current
version of AS 09.17.080 only applies to claims accruing after
March 5, 1989, and should not have been applied in the present
case because Bohna's claim against HT accrued on October 30,
1986, when judgment was rendered against Bohna in favor of
Stevens. Am. 1987 Initiative Proposal No. 2 4 (Certified 1988).
Alaska Statute 09.17.080(d) as it existed in 1986 pro
vided that joint tortfeasors were jointly and severally liable
for all of plaintiff's damages, except that a tortfeasor could
not be jointly liable for more than twice its percentage of
fault.16 Thus, the trial court erred in reducing HT's liability
in accordance with its percentage of fault. Applying the
appropriate version of AS 19.17.080(d), we hold that HT is
jointly and severally liable for Bohna's damages except that HT
may not be liable for more than twice its percentage of fault.
2. Deduction for Comparative Negligence or Failure to
Mitigate Damages.
The jury allocated 15% of the total fault to Bohna for
his comparative negligence and failure to mitigate his damages.
Bohna argues that there should have been no deduction because
neither the comparative negligence nor the failure to mitigate
theories should have gone to the jury.
a. Comparative Negligence.
HT argues that Bohna was comparatively negligent by
failing to inform HT of his dyslexia, a condition which might
have impaired his ability to give informed consent to the excess
offer strategy.17 Bohna maintains that this was not at issue
because during the trial he withdrew his claim that he lacked
capacity to give informed consent. Thus Bohna argues the trial
court erred in instructing the jury on comparative negligence.
In order for Bohna to prevail on this question, we must
find, after reviewing the record, that HT's claim for comparative
negligence was limited to the dyslexia issue, and that Bohna
withdrew any claim that he lacked capacity due to dyslexia. We
find that the record supports Bohna's position.
First, in response to Bohna's motion for directed
verdict on the issue of comparative negligence, HT's attorney
stated that
[w]ith regard to the comparative
negligence issue, I thought about that over
the weekend, as to what the elements of
comparative negligence are here, and I think
there's one are[a]; . . . and this is
dependent upon what they're going to claim,
but I think that they have claimed it and
there is evidence on both sides of the issue.
And, that is Phil Bohna -- if Phil Bohna is
contending that he did not understand what he
was doing because he had some sort of a
disability, then it is our contention that he
was negligent in not making that known to
us. . . .
That is the only area that I am
currently aware of, after having really
thought about it and reviewed my notes and
that sort of thing, that gets into the
comparative negligence area.
(Emphasis added.) HT's attorney took the same position in
closing argument to the jury:
[I]n terms of [Bohna's] negligence,
there's only one area; and that is if Mr.
Bohna, and maybe this is no longer a
contention for Mr. Sandberg's argument. If
Mr. Bohna . . . wants you to believe that
somehow he did not understand or was impaired
in his ability . . . to give informed
consent, then he was negligent for not
informing Hughes, Thorsness of his
impairment. . . . [T]hat may no longer be an
issue in the case if Mr. Sandberg means what
he says about they're not contending that he
didn't understand.
(Emphasis added.) Thus, HT's claim for comparative negligence
was limited to Bohna's dyslexia.
Second, Bohna's attorney confirmed in closing argument
that Bohna withdrew any claim based on lack of capacity:
Mr. DeLisio discussed the fact that
whether or not Mr. Bohna is somehow
comparatively negligent, and he said he
doesn't make that claim unless we claim that
Mr. Bohna lacked the capacity to sign the
consent. We don't make that claim.
Before the trial court instructed the jury, Bohna moved to
withdraw the issue of comparative negligence from the jury's
consideration, but the trial court denied the motion. In this
the trial court erred because together these representations by
counsel effectively withdrew the issue of comparative negligence
from the case.
b. Failure to Mitigate.
Bohna maintains that no instruction on failure to
mitigate should have been given, arguing that "[a]n insured
client has no duty to take bankruptcy to mitigate the damages for
which his lawyer or insurer may be liable." HT counters that
under the facts of this case Bohna did have a duty to mitigate
his damages by attempting to discharge his debt in bankruptcy
because: 1) he was advised that if he agreed to the excess offer
of judgment strategy, he would likely have to attempt to
discharge the excess judgment in bankruptcy; and 2) after
consulting with an independent attorney, he indicated that he
would follow that strategy.18 We agree with Bohna and hold that
the trial court should not have instructed the jury on
mitigation.
Although the parties frame this issue as a question of
duty, we note that Bohna's bankruptcy would not have reduced HT's
liability. HT's malpractice not only caused Bohna to incur
liability to Stevens, but also created an asset. This asset is
Bohna's malpractice claim against HT. Had Bohna filed for
bankruptcy, a court would have appointed a bankruptcy trustee
whose duties would have included collecting all of Bohna's assets
including his malpractice claim against HT. See 4 Collier on
Bankruptcy 541.10(a)(1) (15th. ed. 1987) (The bankruptcy
"estate includes causes of action belonging to the debtor.").
The only thing that would have changed had Bohna filed for
bankruptcy is that the named plaintiff in the present case would
have been the bankruptcy trustee rather than Bohna. Hanover Ins.
Co. v. Tyco Indus. Inc., 500 F.2d 654, 657 (3d. Cir. 1974) (The
bankruptcy trustee is "authorized, exclusively, to bring actions
that could have been instituted by the bankrupt.").
Moreover, even if Bohna's bankruptcy would have reduced
HT's liability, we hold as a matter of public policy that the
duty to mitigate does not extend to filing for bankruptcy.19 As
we observed in Anchorage Independent School District v. Stephens,
370 P.2d 531, 533 (Alaska 1962), the rationale behind the duty to
mitigate damages "is a recognition that legal rules are designed
not only to prevent and repair individual loss and injustice, but
to protect and conserve the economic welfare and prosperity of
the whole community." No one's interests are served by allowing
a plaintiff to recover as damages that which the plaintiff could
have reasonably avoided in the first place.
Under the present circumstances, Bohna's bankruptcy
would not serve the long-run economic welfare and prosperity of
the community. This is so because the primary victim in this
case is Stevens. Bohna's injury derives from Stevens' injury.
Unfortunately, there is no way Bohna could "mitigate"the damages
he caused Stevens.
On the other hand, Bohna had liability insurance which
serves two purposes: to protect Bohna from the financial ruin of
having to pay Stevens' loss, and to compensate Stevens for his
loss. The offer of judgment strategy was clearly in conflict
with both purposes. First, liability insurance is supposed to
protect an insured from bankruptcy, rather than facilitate an
insured's entry into that process. Second, insureds and their
insurers cannot agree to reduce applicable insurance coverage
after an accident occurs. That was the objective of the excess
offer of judgment strategy, which necessarily included Bohna's
bankruptcy.20 This strategy contravened public policy.21 As a
matter of law, Bohna's decision not to follow that strategy
cannot be considered a failure to mitigate damages.
For these reasons, we conclude that the trial court
erred in deducting $920,931.74 for Bohna's alleged comparative
fault or failure to mitigate damages. With only Allstate and HT
left to share the fault, they are responsible for the 15% which
the jury assigned to Bohna. They share this additional burden in
the ratio originally allocated between them by the jury, 51/34.
This results in Allstate's fault totalling 60% and HT's totalling
40%.
3. Deduction for the Loan Receipt Agreement (LRA).
All parties contend that the trial court erred in its
treatment of the LRA. Bohna and Allstate22 maintain that it was
error for the court to deduct any portion of the $3 million loan
from the jury verdict. HT argues that, for various reasons, the
LRA violates Alaska law and public policy, and thus the entire $3
million should have been deducted from the verdict.23
Loan receipt agreements originated as a mechanism for
insurance companies to compensate their insured who had suffered
injury or damage while preserving their rights against
potentially liable third parties. After the insured suffered a
loss, the insurer would loan the amount of the loss to the
insured with the loan to be repaid out of any recovery against a
third party. Structuring the transaction as a loan also allowed
the insurer to avoid being the named plaintiff in a subsequent
action to determine liability.24 Early in this century, the
United States Supreme Court approved the use of the LRA in this
context. The Supreme Court recognized the LRA had the laudable
effect of promptly delivering compensation to the injured
plaintiff. See Luckenbach v. W.J. McCahan Sugar Refining Co.,
248 U.S. 139, 149 (1918). This type of arrangement is still
generally considered lawful. See 16 Couch on Insurance 61.79
(M. Rhodes rev. 2d ed. 1983); Annot., 13 A.L.R.3d 48-49.25
Use of the loan receipt device has expanded beyond the
insurer/insured context into the plaintiff/co-defendant context.26
Although not all courts have accepted LRA's in this context,27 the
majority have. A leading case in the area is Reese v. Chicago,
Burlington & Quincy R.R. Co., 303 N.E.2d 382 (Ill. 1973).
Expressing the policy reasons for upholding LRA's, the Reese
court said:
Because of the potential savings to some
tortfeasors, funds under this arrangement
will be more readily offered to injured
plaintiffs than is the case under a covenant
to forbear from suit or an outright
settlement. Secondarily, loan receipts may
tend to simplify complex multiparty
litigation, and are desirable from the
standpoint of facilitating private resolution
of litigation.
Id. at 386. These reasons have been persuasive to a number of
other courts faced with LRA's between a plaintiff and a co-
defendant. See American Transport Co. v. Central Indiana Ry.
Co., 264 N.E.2d 64, 67 (Ind. 1970); Crocker v. New England Power
Co., 202 N.E.2d 793, 795 (Mass. 1964); Grillo v. Burke's Paint
Co., 551 P.2d 449, 452-53 (Or. 1976); Jensen v. Beaird, 696 P.2d
612, 618 (Wash. App. 1985); cf. Slaughter v. Pennsylvania X-Ray
Corp., 638 F.2d 639, 643 (3d Cir. 1981) (Penn. law); City of
Tucson v. Gallagher, 493 P.2d 1197, 1199 (Ariz. 1972); Firestone
Tire & Rubber Co. v. Little, 639 S.W.2d 726, 728 (Ark. 1982),
rev'd on other grounds sub nom; Shelton v. Firestone Tire &
Rubber Co., 662 S.W.2d 473, 475 (Ark. 1983); Webb v. Dessert Seed
Co., 718 P.2d 1057, 1067 (Colo. 1986); General Motors Corp. v.
Lahocki, 410 A.2d 1039, 1046 (Md. App. 1980); Barlage v. The
Place, Inc., 277 N.W.2d 193, 194-95 (Minn. 1979); O'Howell v.
Continental Ins. Co., 654 S.W. 2d 308, 308-09 (Mo. App. 1983);
Hegarty v.Campbell Soup Co., 335 N.W.2d 758, 764-65 (Neb. 1983);
Bedford School District v. Caron Constr. Co., Inc., 367 A.2d
1051, 1055 (N.H. 1976); Corn Exch. Bank v. Tri-State Livestock
Auction Co., 368 N.W.2d 596, 599-600 (S.D. 1985); Stein v.
American Residential Management, 781 S.W.2d 385, 388-9 (Tex App.
1989); Vermont Union School Dist. No. 21 v. H.P. Cummings Constr.
Co., 469 A.2d 742, 748-50 (Vt. 1983); Reager v. Anderson, 371
S.E.2d 619, 630 (W. Va. 1988).
HT urges us to adopt the reasoning of Justice
Schaefer's dissent in Reese. Justice Schaefer made a number of
arguments against the use of LRA's in the plaintiff/co-defendant
context. First, he argued that such use undermines the doctrine
that prohibits assignment of a cause of action for personal
injuries. Second, he attacked the majority's policy
justifications for the LRA. He argued that the law should not
permit one defendant to pay to influence the plaintiff to pursue
other defendants. He also denied that the LRA facilitated the
private resolution of litigation since it required the plaintiff
to pursue the nonsettling defendant. Finally, Justice Schaefer
argued that the LRA could throw the entire loss onto the less
blameworthy of two defendants. This may happen, according to
Justice Schaefer, because the more blameworthy party has more to
lose and is thus willing to pay more to secure an LRA from the
plaintiff. Reese, 303 N.E.2d at 387-88 (Schaefer, J.,
dissenting).
We do not find that these points compel a rejection of
LRA's. As we discuss below, we do not find that the LRA
constitutes an illegal assignment. As for the concern about one
defendant influencing the plaintiff to sue the others, it would
seem that the plaintiff would usually sue the nonsettling
defendant regardless of the existence of the LRA. The LRA simply
allows the settling defendant to induce the plaintiff not to sue
him or her. We also disagree with the objection that the LRA
does not facilitate the private resolution of litigation. It is
true that the LRA does not eliminate all litigation concerning a
case. However, from the viewpoint of the settling defendant, the
LRA clearly does provide a way to resolve claims against him or
her. An LRA allows settling defendants to limit their liability
and avoid some of the uncertainties inherent in litigation.
Without the possibility of recoupment provided by LRA's, it is
less likely that such defendants would settle. Finally, we do
not find that the argument that LRA's allow the more blameworthy
defendant to shift the entire liability to the less blameworthy
party is a reason for invalidating LRA's. As we note below, the
amount of the loan, as well as the amount of the settlement, is
fully deductible from the award against the nonsettling
defendant. With such deductions, the wholesale loss shifting
which concerned Justice Schaefer cannot take place.
HT nevertheless maintains that the LRA "contracts away"
the restriction in AS 09.16.010(d) which provides that a settling
tortfeasor is not entitled to contribution from a nonsettling
joint tortfeasor whose liability is not extinguished by the
settlement.28 According to HT, the LRA allows Allstate, a
settling tortfeasor, to obtain what effectively amounts to
contribution from HT, a nonsettling tortfeasor, contrary to the
intent of the Contribution Act. Despite HT's strenuous defense
of what it believes to be the intent of the Contribution Act, the
actual language of AS 09.16.010(d) does not preclude these types
of agreements. Thus, we hold that the LRA does not violate AS
09.16.010(d).
HT attacks the LRA from another angle, arguing that it
is inconsistent with the Code of Professional Responsibility and
threatens the integrity of the judicial process. HT bases this
claim on the realignment of interests created by the LRA.
According to HT, the LRA is a collusive agreement which creates a
"fertile environment for perjury,"and misleads the jury since
the agreeing defendant remains as a captioned defendant and not a
"real" defendant.29 We find HT's position to be without merit.
The concerns were adequately met by allowing HT to disclose the
realignment of interests to the jury and by letting the jury
evaluate the witness' credibility.30 See Reese v. Chicago,
Burlington & Quincy R.R. Co., 303 N.E.2d 382, 387 (Ill. 1973).
Finally, HT attacks the LRA as an illegal assignment of
a legal malpractice action. According to HT, the terms and
conditions of the loan and the fact that some of the loan funds
went to pay expenses associated with the litigation against HT
"establish an assignment to Allstate." We disagree.
According to the terms of the LRA,
[p]ayment on the note is due at the time of
and in the full amount of any money received by
Phillip Bohna by reason of any claim arising out
of or related to the August 21, 1981 automobile
accident which injured Anthony Stevens . . .
including but not limited to the claims asserted
against [HT].
At most, this establishes a partial assignment of the proceeds of
the malpractice claim against HT, not the cause of action itself.31
Although we have not directly addressed the validity of the
assignment of the proceeds of a legal malpractice claim, we did
not disapprove of the practice in Continental Ins. Co. v. Bayless
& Roberts, Inc., 608 P.2d 281, 286 (Alaska 1980). Other courts
have explicitly upheld the validity of such assignments. See
e.g., Weston v. Dowty, 414 N.W.2d 165, 167 (Mich. App. 1987);
First Nat'l Bank of Clovis v. Diane, Inc., 698 P.2d 5, 14 (N.M.
App. 1985). We agree with these authorities.
Having concluded that the LRA is a valid settlement
device,32 the next question is whether any part of the loan must
be deducted from the judgment against HT. The statute relevant
to this issue is AS 09.16.040 (repealed eff. 3/5/89) which
provides:
When a release or covenant not to sue or
not to enforce judgment is given in good
faith to one of two or more persons liable in
tort for the same injury or the same wrongful
death
(1) it does not discharge any of
the other tortfeasors from liability for the
injury or wrongful death unless its terms so
provide; but it reduces the claim against the
others to the extent of any amount stipulated
by the release or the covenant, or in the
amount of the consideration paid for it,
whichever is the greater; and
(2) it discharges the tortfeasor to
whom it is given from all liability for
contribution to any other tortfeasor.33
(Emphasis added.)
The trial court determined that the portion of the loan
which Bohna must repay was not consideration paid for the release
given Allstate. We disagree. A loan may be consideration for an
exchanged benefit as readily as an unconditional payment. See
Credit Alliance Corp. v. Cornelius & Rush Coal Co., 508 F. Supp.
63, 66 (N.D. Ala. 1980) (Ala. law) (a loan is consideration for
an exchanged benefit). Further, if the loan amount of an LRA is
not treated as consideration, the widespread use of LRA's will
have troubling implications. Neither plaintiffs nor settling
defendants would have any incentive not to structure 100% of all
settlements as LRA's. Such a tactic would result in an undue
shifting of losses to nonsettling defendants. There is authority
in other jurisdictions which mirrors this view. E.g., Cullen v.
Atchinson, Topeka & Santa Fe Ry. Co., 507 P.2d 353, 362 (Kan.
1973) ("[A]nything received by way of a covenant not to sue
operates as a payment pro tanto upon any judgment obtained
against the others.") (citation omitted); Reager v. Anderson, 371
S.E.2d 619, 632 (W. Va. 1988).
We recognize that most jurisdictions deduct no part of
the loan amount or only deduct the portion of the loan amount
which plaintiffs do not repay. See Webb v. Dessert Seed Co., 718
P.2d 1057, 1067 (Colo. 1986); Popovich v. Ram Pipe & Supply Co.,
412 N.E.2d 518, 521 (Ill. 1980); American Transp. Co. v. Central
Indiana Ry. Co., 264 N.E.2d 64, 67 (Ind. 1970); Pacific Indem.
Co. v. Thompson-Yaeger, Inc., 258 N.W.2d 762, 765 (Minn. 1977);
Grillo v. Burke's Paint Co., 551 P.2d 449, 454 (Or. 1976).34
However, these jurisdictions do not appear to be construing
language similar to the "consideration paid" language of AS
09.16.040.35 Thus, although there seem to be more jurisdictions
which do not deduct amounts loaned under an LRA than do, our
position does not run counter to the uniformity of interpretation
clause of Alaska's Uniform Contribution Act.36
4. Interest Calculations.
HT argues that the interest component of the final
judgment was incorrectly computed in two ways. First, HT argues
that the trial court erroneously compounded post-judgment
interest on the pre-judgment interest element of the judgment in
favor of Stevens. The Stevens judgment was for $3,000,000 in
principal plus $1,619,876.72 in pre-judgment interest plus costs
and attorney's fees. HT claims that when the trial court
calculated the pre-judgment interest on the Bohna judgment
against HT, no interest on the $1,619,876.72 component should
have been awarded.
This argument is without merit. Pre-judgment interest
is an element of compensation. Farnsworth v. Steiner, 638 P.2d
181, 184 (Alaska 1981). When a judgment is entered, pre-judgment
interest becomes part of the judgment. After pre-judgment
interest is added to the principal amount found by the court or
jury, Civil Rule 82 attorney's fees are calculated based on the
total award, referred to in Civil Rule 82 as the "money
judgment." Id. at 185. It follows that pre-judgment interest is
also part of the judgment on which post-judgment interest is
calculated.
HT argues that the court erred by continuing to accrue
pre-judgment interest on Bohna's judgment against HT after
October 27, 1989, when Stevens gave Bohna a partial satisfaction
of judgment for $4 million. The date of the partial satisfaction
is not relevant. If Bohna were a wealthy man and had paid
Stevens $4 million of his own funds in exchange for a partial
satisfaction, the partial satisfaction of judgment would clearly
not signal an end to the accrual of pre-judgment interest on
Bohna's claim against HT. The fact that the $4 million in this
case came from Allstate rather than Bohna does not alter this
conclusion. However, independent of the satisfaction, when Bohna
received the $4 million from Allstate which reduced Bohna's claim
against HT by $4 million under AS 09.16.040(1), he was not
thereafter entitled to receive pre-judgment interest on that
amount from HT. Thus, pre-judgment interest should have been
calculated on $4,569,876.7237 until October 19, 1989, when the $4
million settlement was paid to Bohna. Thereafter, pre-judgment
interest should have been calculated on $569,876.72.
5. Summary of Judgment Calculations.
Although a number of other issues are raised by the
parties, none changes the calculation of the judgment. For
purpose of clarity, we will set out at this point the
calculations required by this opinion.
$6,139,544.94 = Verdict before deductions.
- 125,424.64 = Interest on $4 million at 10.5% from 10/20/89
to 2/6/90.
$6,014,120.30 = Verdict adjusted to eliminate pre-judgment
interest on $4 million settlement amount paid
to Bohna as required by AS 09.16.040(1).
-4,000,000.00 = Settlement amount paid Bohna, adjusted as
required under AS 09.16.040(1).
$2,014,120.30 = Adjusted verdict after interest and
settlement deductions.
_______________
$6,014,120.30 = Adjusted verdict after interest deduction
multiplied by twice the total fault
x.80 allocated to HT. (The "cap"formula of
$4,811,296.20 AS 09.17.080(d) (see supra n. 16).)
Since the amount of the verdict resulting from
application of the "cap"formula is more than the adjusted
verdict under AS 09.16.040(1), the adjusted verdict of
$2,014,120.30 is the proper principal judgment against HT.
B. OTHER ISSUES RAISED BY BOHNA
1. Punitive Damages.
Bohna argues that the trial court prejudiced his claim
for punitive damages38 by granting partial summary judgment to HT
on the issue of fiduciary fraud. The trial court ruled that
Bohna's complaint failed to allege fiduciary fraud with the
specificity required by Civil Rule 9(b).39 Further, Bohna argues
that his subsequent request to amend his complaint to more
specifically allege a claim for fiduciary fraud was erroneously
denied. The jury concluded that punitive damages against HT were
not otherwise appropriate in this case.
Our review of the record leads us to conclude that
Bohna probably suffered no prejudice because of the trial court's
rulings concerning his fiduciary fraud punitive damages claim.
The trial court instructed the jury that punitive damages could
be awarded if it found HT's conduct to be "outrageous because of
[HT's] evil motives toward the plaintiff or its reckless
indifference to his rights." Bohna was permitted to present
evidence relating to an attorney's fiduciary duties to his
client. At final argument he urged the jury to make an award of
punitive damages against HT because HT had been loyal to Allstate
at Bohna's expense and thus was recklessly indifferent to his
rights. We conclude therefore that even if the trial court erred
in its rulings concerning Bohna's claim for fiduciary fraud, such
error was harmless.
C. ADDITIONAL CLAIMS RAISED BY HT
1. Assignment of the Cause of Action Against HT to
Stevens.
In a motion for summary judgment, HT challenged the
agreement between Stevens and Bohna, contending that it
constituted an impermissible assignment of Bohna's malpractice
claim against HT. After considering case law from Alaska and
other jurisdictions, the trial court concluded that "[o]n its
face, the assignment is for more than the proceeds from the
recovery in this case [and thus] the assignment is invalid on its
face." The court, however, did not dismiss Bohna's claim for
malpractice against HT.
HT argues that Bohna's malpractice claim against HT
should have been dismissed because Bohna illegally assigned his
cause of action to Stevens.40 We disagree. Assuming that the
Stevens-Bohna agreement constituted an assignment, it was held
invalid by the trial court. Therefore, Bohna retained his cause
of action against HT and proceeded to enforce it.
2. Motion for Directed Verdict.
At the close of Bohna's case-in-chief, HT moved for a
directed verdict, claiming that Bohna's experts had failed to
establish the standard of care by which the jury was supposed to
judge HT's actions. The motion was denied. HT argues that the
denial was error, that the judgment for Bohna should be reversed,
and the case dismissed or remanded for a new trial.
When reviewing the denial of a motion for directed
verdict we do not weigh conflicting evidence or judge the
credibility of the witness; rather, we determine whether the
evidence, when viewed in the light most favorable to the non-
moving party, is such that reasonable people could not differ in
their judgment. If there is room for diversity of opinion among
reasonable people, the question is properly for the jury.
Petersen v. Mutual Life Ins. Co., 803 P.2d 406, 410 (Alaska
1990).
In Drake v. Wickwire, 795 P.2d 195 (Alaska 1990), we
held that expert evidence is required "to establish a breach of
an attorney's duty of care, except in non-technical situations
where negligence is evident to lay people or where the fault is
so clear as to constitute negligence as a matter of law." Id. at
196. Such evidence was presented in this case. Leroy Barker, an
insurance defense specialist called by HT, admitted on cross-
examination that "[a] defense attorney who exposed his own client
to an excess judgment when he could have used insurance company
money to settle the case wouldn't [meet] the standard of care of
[the] community." Based on this evidence, reasonable jurors
could have concluded that HT breached the duty of care it owed to
Bohna.41 Thus, the trial court properly denied HT's motion for a
directed verdict.42
3. Peremptory Challenges.
HT requests a new trial because it was granted the same
number of peremptory challenges as were given Bohna and Allstate
considered separately. HT argues that Bohna and Allstate did not
have adverse interests, and hence under Civil Rule 47(d) they
should have been treated as a single party for the purpose of
awarding peremptory challenges. Failure to do so, according to
HT, impaired its right to a fair and impartial jury. Bohna
responds that HT cannot complain about not being awarded more
peremptory challenges when it failed to use all those which it
was awarded.43
Civil Rule 47(d) governs peremptory challenges and
provides in part:
Each party may challenge peremptorily
three jurors. Two or more parties on the
same side are considered a single party for
purposes of peremptory challenge, but where
multiple parties having adverse interests are
aligned on the same side, three peremptory
challenges shall be allowed to each such
party represented by a different attorney.
By ruling that Bohna, Allstate, and HT would each be allowed four
peremptory challenges,44 the trial court implicitly determined
that Bohna and Allstate were parties having adverse interests.
This is a factual determination which we will not disturb unless
clearly erroneous. Alaska R. Civ. P. 52(a).
We do not believe that the interests of Bohna and
Allstate were truly adverse. Allstate's liability to Bohna had
been extinguished by the settlement agreement. By virtue of the
LRA, both were interested in seeing the jury return a large
verdict against HT. Allstate wanted a large verdict because the
larger the verdict, the more likely it would recover fully on its
loan. Bohna wanted a large verdict because he was obligated to
pay Allstate only the loan principal plus interest. Given a
sufficiently large verdict (with punitive damages, for example),
he would be able to satisfy completely the Stevens judgment and
keep any excess. Thus, the trial court's finding that Bohna and
Allstate had adverse interests was clearly erroneous.
Bohna nevertheless maintains that HT must show that it
was prejudiced by the court's erroneous award of peremptory
challenges in order to justify reversal. HT responds that a
requirement of prejudice in this context is senseless because
peremptory challenges allow a party to remove a prospective juror
for "intuitive and often unexplainable reasons." Thus, to
require a showing of prejudice would in effect nullify Civil Rule
47(d).
There is no Alaska case law on whether a showing of
prejudice should be required in order to obtain a new trial when
one party is allowed too many peremptory challenges. However,
under our harmless error rule, only errors which are
"inconsistent with substantial justice"are grounds for granting
a new trial. Alaska R. Civ. P. 61.45 Further, where an error has
been made in denying the challenge of a prospective juror for
cause, Alaska case law requires a showing of prejudice, at least
to the minimal extent of requiring that a litigant exercise all
available peremptory challenges. Arnold v. State, 751 P.2d 494,
501 (Alaska App. 1988); McGee v. State, 614 P.2d 800, 807 (Alaska
1980); City of Kotzebue v. Ipalook, 462 P.2d 75, 77 (Alaska
1969).
The cases in other jurisdictions are divided on whether
a showing of prejudice is required to warrant a new trial when
excessive peremptory challenges are awarded to a litigant or to
multiple litigants having the same interest. See Effect of
Allowing Excessive Number of Peremptory Challenges, 95 A.L.R. 2d.
957 (1970). The majority rule seems to be that some showing of
prejudice is required:
The numerical weight of authority
in civil cases supports the rule that a
judgment will not be reversed for error in
allowing one or more peremptory challenges in
excess of that provided by statute, unless
the complaining party shows that he has
exhausted his peremptory challenges and has
suffered material injury from the action of
the court, and that as a result thereof one
or more objectionable jurors sat on the case,
or for some other equally cogent reasons.
Id. at 963. For the reasons that follow, we align Alaska with
this view.
An impartial jury is fundamental to the American
tradition of trial by jury. Peremptory challenges are thus not
for the purpose of securing a jury biased for one's side or
against the opponent's side. On the contrary, a primary purpose
of peremptory challenges is to help secure an impartial jury.
They permit each party to reject certain prospective jurors whom
they believe, but cannot demonstrate, harbor some latent
predisposition against their position or for the opponent's
position.
Peremptory challenges are thus not an end in
themselves, but rather a means to an end: an impartial jury.
Where a party receives an impartial jury, the issue of
peremptories is moot. The question is thus whether HT obtained a
fair jury despite the imbalance of peremptories. In light of
what has been set out above, we know first of all that Bohna and
Allstate were able to strike four people from the jury who
presumably should have been able to remain there. Whether or not
any or all of these people were biased in some fashion, HT has no
basis to complain as long as four unbiased people were selected
in their places.46 We have no reason to doubt that this is what
happened here. First, HT does not claim that any of the people
who ultimately served on the jury should have been removed for
cause but were allowed to stay by the trial court.47 Second, HT
did not use all the peremptory challenges which it was awarded.48
This leads us to believe that HT did not even subjectively
perceive that any of the people who served on the jury were
biased against HT. Hence, we conclude that HT received a fair
jury, and the trial court's erroneous allocation of peremptory
challenges was harmless error. Alaska R. Civ. P. 61.
4. Satisfaction of Judgment.
On November 10, 1987, Bohna and Stevens agreed that
Stevens would enter into a covenant not to execute upon the
judgment against Bohna pending the outcome of the action against
HT. In turn, Bohna agreed that he would, among other things,
diligently pursue his claims against Allstate and HT. Stevens'
partial covenant not to execute was superseded by a permanent
covenant not to execute dated October 27, 1989. In the latter
document, Stevens covenanted not to execute upon the judgment
against Bohna except to the extent that Bohna obtained a recovery
against HT.49
Citing the covenant not to execute, HT urges this court
to reverse the judgment and dismiss Bohna's cause of action.
HT's theory is that, because of the covenant not to execute,
Bohna did not suffer a loss sufficient to permit him to maintain
suit against HT. The terms of the covenant fail to support this
claim. The proceeds from Bohna's lawsuit were explicitly left
subject to execution. By the terms of the November 10 agreement,
Bohna was required to pursue diligently his cause of action
against HT. Failure to do so would have been a material breach
of the agreement. In such a case, Bohna would no longer be able
to assert the covenant not to execute in order to bar Stevens
from executing on the judgment against Bohna. Because of this
vulnerability to execution on the Stevens judgment, Bohna
retained the element of loss despite the covenant not to execute.
Cf. Continental Ins. Co. v. Bayless & Roberts, Inc., 608 P.2d 281
(Alaska 1980) (no plain error under similar circumstances).
5. Evidentiary Points.
HT lists as error various rulings by the trial court
excluding the presentation of certain testimony and the
introduction of certain documents into evidence. We review such
rulings for abuse of discretion. We will find that a trial court
abused its discretion when we are left with a definite and firm
conviction, after reviewing the whole record, that the trial
court erred in its ruling. In re D.J.A., 793 P.2d 1033, 1035-36
n.2 (Alaska 1990). Moreover, a party may not assign as error the
exclusion of evidence unless the exclusion is inconsistent with
substantial justice. Alaska R. Civ. P. 61; see also Alaska R.
Evid. 103(a). We decline to overturn the jury verdict based on
any of these evidentiary rulings since, assuming they were
erroneous, we find the error to be harmless.
The first point raised by HT is the trial court's
refusal to allow the expert testimony of Kenneth Treadwell, a
former bankruptcy judge, on the issue of the dischargeability of
Bohna's excess judgment in bankruptcy. The court determined
that, at the time Powell proposed the excess offer strategy,
whether or not Bohna could discharge the judgment in bankruptcy
was legally uncertain. The court viewed the question facing the
jury as: Given that contingency, what would a reasonable,
prudent attorney do under those circumstances?
HT claims that it may have been prejudiced by this
ruling because "there is no way of knowing the relation between
the jury's finding of negligence and Hughes Thorsness' advice to
Bohna on the contingency of non-dischargeability." As it
happens, examining the special verdict form provides an easy way
to determine this. Answering Question 1, the jury found that HT
was negligent. However, Question 3 specifically asked if HT was
negligent in making excess offers of judgment. The jury answered
"No." Instead, the jury indicated in its answer to Question 6
that HT was negligent for reasons other than making excess offers
of judgment. Given these findings, we see no manner in which HT
may have been harmed by the court's refusal to allow Treadwell's
testimony on the dischargeability of the judgment.
Next, HT contends that the trial court erred by
refusing to allow HT to introduce evidence of Bohna's blood
alcohol level at the time of the collision or any similar
evidence regarding Stevens. According to HT, the excluded
evidence "went to the heart of the question of negligence." Yet
HT fails to explain how any of this evidence, if introduced,
might have affected the jury's finding that HT was negligent in
ways other than making excess offers of judgment. HT vaguely
claims that "[t]he jury was prevented from assessing the full
factual basis from which Hughes Thorsness acted." This still
does not identify the manner in which HT was prejudiced. Thus,
we cannot say that we are left with a definite and firm
conviction that the trial court erred.
Finally, HT assigns as error the trial court's refusal
to allow into evidence Bohna's opposition to a motion made by
Allstate, pursuant to Civil Rule 60(b), to deem the excess
judgment against Bohna satisfied.50 The trial court ruled that
Bohna's opposition was irrelevant. HT alleges four ways in which
the evidence of Bohna's opposition was relevant: 1) it relates
to Bohna's failure to mitigate damages, 2) it shows Bohna's
contributory negligence in that he breached his duty to assist
Allstate in its defense of the Stevens suit, 3) it demonstrates a
greater concern for amassing personal wealth than for eliminating
the judgment against him, and 4) his memorandum in opposition
contains a prior inconsistent statement on who caused the excess
judgment.
HT's demand for a new trial on the ground that it was
denied the opportunity to introduce evidence of Bohna's
opposition to Allstate's Civil Rule 60(b) motion must be
rejected. Even assuming that Bohna's opposition to the Civil
Rule 60(b) motion was relevant, we cannot say that HT's inability
to present this evidence probably affected the jury's verdict.
Allstate's motion was so lacking in merit51 that, even if the jury
had been informed of Bohna's opposition, it is unlikely that the
jury would have concluded that his opposition affected the amount
of damages he suffered. See Poulin v. Zartman, 542 P.2d 251, 261
(Alaska 1975). Nor are we convinced that this evidence was so
probative in exposing Bohna's motive or shaking his credibility
that its exclusion probably affected the jury's verdict. Id.
Thus, to the extent that the trial court's ruling was error, it
was harmless error not justifying reversal and a new trial.
Alaska R. Civ. P. 61; In re D.J.A., 793 P.2d 1033, 1035-36 n.2
(Alaska 1990).
6. Jury Instructions Regarding Attorney Conduct.
HT argues that it is entitled to a new trial because
the trial court refused to give the jury certain proposed
instructions concerning attorney malpractice. Specifically, HT
wanted the trial court to: first, instruct the jury that an
attorney's conduct cannot be judged by subsequent case law and
that an attorney must be judged under circumstances similar to
those existing at the time of the conduct; and, second, provide
the jury with proposed clarifying instructions. In light of the
trial court's actual instructions and because the issue of
whether an attorney's conduct should be judged by subsequent case
law was not raised before the jury, we hold that the trial court
did not err by refusing to provide the jury with HT's proposed
instructions.
On the issue of attorney negligence, the trial court's
instruction provided in part:
An attorney is negligent in the
representation of a client if he breaches the
required standard of care by failing to use
such skill, prudence, and diligence as other
attorneys commonly possess and would exercise
under similar circumstances . . . .
An attorney is not necessarily
negligent because he makes errors in judgment
or because his efforts are unsuccessful. An
attorney is negligent if the error in
judgment or lack of success is due to his
failure to use such skill, prudence and
diligence as other attorneys commonly possess
and would exercise under similar
circumstances.
(Emphasis added.) During HT's presentation of its case, HT's
expert witness testified that the required standard of care for
an attorney is to analyze "the law that is in existence at that
time . . . . [and] to exercise the diligence, skill, competence,
prudence of a lawyer who is in similar practice here in
Anchorage."52 (Emphasis added.) HT did not cite to any instances
where either Bohna or Allstate offered evidence that an attorney
should be judged by subsequent case law. Thus, there was no need
for the trial court to give the jury HT's proposed instruction on
attorney negligence because the issue of whether HT should be
judged by subsequent case law was never presented to the jury.
As mentioned, HT also claims that the trial court erred
by not providing the jury with proposed clarifying instructions.
HT argues that because the trial court instructed the jury that
it had ruled that Allstate had breached its duty of care to
Bohna, the jury may have been confused into thinking that the
trial court's ruling applied to HT as well.53 HT claims it was
further prejudiced from instances of opposing counsel eliciting
testimony which allegedly suggested that HT was at fault for not
making a policy limits offer. We hold that the trial court's
actual instructions adequately dealt with any possible confusion.
On the issue of duty, the trial court's instruction
provided in part:
The court has ruled in this case
that Allstate had certain duties to Bohna in
this case and that it breached those duties.
The court's rulings are based upon the policy
language and the law which interprets those
duties. . . .
These rulings of the court
regarding Allstate, however, do not establish
any duties owed by [HT] to Phillip Bohna.
The duties owed by [HT] to Bohna are
established by the expert testimony which you
have heard in this case. The jury must
evaluate and weigh the expert testimony to
decide first what duties were owed by [HT];
secondly, which, if any, of those duties were
breached; and thirdly, whether those breaches
legally caused loss to Bohna.
(Emphasis added.) The trial court further instructed the jury:
The insurance policy issued to Bohna
provided coverage which had a dollar value to
him. This dollar value is called "policy
limits."
It is the duty of an insurance
company to determine the dollar value of its
policy limits. No one else has the duty to
determine the dollar value of the policy
limits for an insurance company.
(Underline in original, italics added.) These instructions
clearly informed the jury that the trial court's ruling as to
Allstate's breach of duty did not apply to HT, and that HT was
not responsible for determining the value of policy limits nor
making a policy limits offer.54 As such, they were highly
favorable to HT, since Allstate contended that it was relying on
HT to advise it as to what policy limits would be given the
uniqueness of Alaska law regarding court awarded attorney's fees.
Moreover, the instructions proposed by HT would not
have substantially clarified any confusion which may have
existed. HT's proposed Instruction 8 would have advised the
jury that an attorney "is not liable for being in error as to a
question of law on which reasonable doubt may be entertained by
well-informed lawyers," and that, prior to 1988, "rational
disagreement was possible as to what comprised a tender of policy
limits." This adds little if anything to the trial court's
actual instruction which informed the jury that "[n]o one
[besides the insurance company] has the duty to determine the
dollar value of the policy limits for an insurance company." As
for HT's other proposed instructions, they would not have aided
HT in this regard.55 We therefore conclude that the trial court
did not err in denying HT's proposed clarifying instructions.
7. Costs and Attorney's Fees Awarded to Bohna.
After trial, Bohna moved for costs and attorney's fees.
The trial court awarded Bohna $34,454.47 in costs and $92,700.00
in attorney's fees. HT claims that this was a double recovery
because of the way in which part of the $4 million paid by
Allstate was allocated: $250,000 was dedicated to a litigation
fund out of which the litigation against HT was financed, while a
total of $625,000 went directly to Bohna's attorneys. Thus,
according to HT, the court awarded costs and fees constituted a
double recovery.
The award of costs and attorney's fees is committed to
the broad discretion of the trial court. We will not find an
abuse of that discretion absent a showing that the award was
"arbitrary, capricious, manifestly unreasonable, or . . .
stem[med] from an improper motive." Tobeluk v. Lind, 589 P.2d
873, 878 (Alaska 1979). Since, in the present case, the trial
court awarded fees in line with the Civil Rule 82 schedule, they
are presumptively correct. Babinec v. Yabuki, 799 P.2d 1325,
1337 (Alaska 1990).
This case involves a private contract which funded the
litigation for which costs and fees were ultimately awarded. The
question is whether such a contract should affect the award of
costs and fees. We have said that Civil Rule 82 is meant to
provide partial compensation to a prevailing party. Tobeluk at
876. In our view, since all litigation must be financed in some
way, the purpose of Civil Rule 82 is not defeated by private
agreements which accomplish this. In this case, Bohna was able
to obtain financing as part of the overall agreement with
Allstate and Stevens. In the course of the litigation against
HT, he incurred substantial legal costs and attorney's fees. He
was thus entitled to partial compensation like any other
prevailing party. There was no abuse of discretion. We note,
however, that on remand, the court may revise its award of costs
and fees when entering the judgment directed in this opinion.
D. ALLSTATE INSURANCE COMPANY V. HUGHES THORSNESS
Prior to settling with Bohna, Allstate filed a cross-
claim seeking indemnity from HT if Allstate were found liable to
Bohna as a result of HT's actions. Allstate later sought
indemnity for the $1 million it paid under the settlement
agreement. We now turn to the issues arising out of Allstate's
indemnity claim.
1. In a pre-trial hearing, the trial court determined that
in order for Allstate to recover on its indemnity claim, Allstate
had to be found fault free by the jury. The trial court made
this determination based on our decision in Vertecs Corp. v.
Reichold Chems., Inc., 661 P.2d 619, 626 (Alaska 1983), where we
held that implied indemnity was not available between
concurrently negligent tortfeasors.
Allstate maintains that the Vertecs rule does not apply
to claims of implied contractual indemnity. HT argues to the
contrary. However, when the parties filed their briefs, they did
not have the benefit of our opinion on rehearing in Fairbanks
North Star Borough v. Kandik Construction, Inc., ___ P.2d ___,
Op. No. 3792 (Alaska, December 27, 1991). There we vacated that
part of the original Kandik opinion which left undecided the
applicability of comparative fault principles to implied
contractual indemnity claims. We squarely held that the Vertecs
rule applies in such cases. In other words, we held that a
defendant cannot recover on an implied contractual indemnity
claim unless he or she is completely fault free with respect to
the underlying damages for which indemnity is sought. Kandik at
14. Thus, the trial court was correct in ruling that Allstate's
indemnity claim was barred if Allstate were found to be
responsible in part for Bohna's damages.
2. By a pre-trial order dated August 15, 1988, the trial
court set January 13, 1989, as the deadline for filing motions to
amend the pleadings. With HT's consent, Allstate amended its
answer to assert its initial cross-claim after this deadline.
Allstate and Bohna eventually settled on October 19, 1989. On
October 26, 1989, less than one month before the start of trial,
Allstate sought leave to amend its cross-claim to assert direct
causes of action against HT. The proposed amended cross-claim
would have added claims for breach of a lawyer's duty to a
client, breach of contract, and breach of an agent's duty to a
principal. The trial court denied Allstate's motion to amend as
untimely and prejudicial.
Allstate argues that the trial court abused its
discretion56 because Allstate's direct claims did not accrue until
Allstate had suffered "actual damage"by settling with Bohna.
Allstate also maintains that HT was not surprised or in any way
prejudiced by the assertion of these direct causes of action.
The trial court did not abuse its discretion in denying
Allstate's motion to amend. Bohna initially brought suit against
Allstate and HT on December 16, 1987. The trial court set
January 13, 1989, as the deadline for filing motions to amend the
pleadings. Allstate attempted to amend its cross-claim on
October 26, 1989 -- over nine months after the filing deadline
and only three weeks before a trial scheduled to last thirty
days. In light of these facts, we hold that Allstate's motion to
amend was properly rejected as untimely.57
3. Allstate next contends that the issue of whether it
breached its implied covenant of good faith and fair dealing
should have been allowed to go to the jury. Instead, the trial
court ruled, as a matter of law, that Allstate had breached its
covenant of good faith and fair dealing by 1) using excess offers
of judgment in order to calculate Civil Rule 82 attorney's fees,
and 2) not tendering "policy limits." We affirm.
As we recently recognized, where an adverse verdict in
excess of policy limits is likely, an insurance company has the
duty to determine "the amount of a money judgment which might be
rendered against its insured,"and "to tender in settlement that
portion of the projected money judgment which [it] contractually
agreed to pay." Schultz v. Travelers Indem. Co., 754 P.2d 265
(Alaska 1988) (per curiam). This duty required Allstate to offer
Stevens a quantifiable dollar amount representing Allstate's
obligation under the policy. See Providence Washington Ins. Co.
v. Fireman's Fund Ins. Cos., 778 P.2d 200 (Alaska 1989).58 On
September 16, 1986, in a letter to Allstate, Powell estimated
that the verdict value of the case to be no less than $3 million.
Using the "contested without trial"portion of the Rule 82 table,
Powell estimated that Allstate's obligation under the policy was
no less than $162,680 plus costs.59 Yet Allstate never offered
Stevens a specific dollar amount of more than $50,000. Thus, the
trial court was correct in ruling that, as a matter of law,
Allstate breached its obligation of good faith and fair dealing.60
CONCLUSION
Entry of judgment in Bohna's favor was proper.
However, the value of the jury verdict was incorrectly calculated
and certain improper setoffs were made. First, the trial court
erroneously concluded that the judgment against HT should be
proportional to its fault. Second, the trial court incorrectly
calculated the jury verdict by awarding pre-judgment interest on
the $4 million paid by Allstate to Bohna, from the date of
payment to the date the Bohna judgment was entered. Third, in
determining setoffs, the trial court improperly deducted from the
jury verdict for Bohna's supposed comparative fault and failure
to mitigate his damages. Fourth, the court should have deducted
from the jury verdict the full $3 million received by Bohna under
the LRA. With corrections made for these errors, Bohna is
entitled to entry of judgment against HT in the amount of
$2,014,120.30.
On Allstate's cross-claim, the judgment in favor of HT
is affirmed.
AFFIRMED in part, REVERSED in part, and REMANDED.
COMPTON, Justice, concurring.
The court concludes that the $3,000,000 "loan"provided
for in the Loan Receipt Agreement (LRA) used by Allstate
Insurance Company is "consideration"within the meaning of AS
09.16.040(1), and must be set off against the judgment obtained
by Bohna. I agree. Since this issue is dispositive of the
challenges to the LRA, there is no reason to address other
challenges. I express no opinion whether I agree with the
court's analysis of those challenges.
_______________________________
1 Bohna admitted to having had one or two beers before the
accident. There was also evidence that Bohna had been driving
too fast and had run a red light just before the crash. Bohna's
lawyer at the time thought that "the chances of [Bohna] escaping
liability . . . were . . . pretty remote."
2 At the time Stevens sued Bohna, Civil Rule 82(a)(1)
provided as follows:
Unless the court, in its
discretion, otherwise directs, the following
schedule of attorney's fees will be adhered
to in fixing such fees for the party
recovering any money judgment therein:
ATTORNEY'S FEES IN AVERAGE CASES
Without Non-
Contested trial contested
First $2,000 25% 20% 15%
Next $3,000 20% 15% 12.5%
Next $5,000 15% 12.5% 10%
Over $10,000 10% 7.5% 5%
Should no recovery be had,
attorney's fees for the prevailing party may
be fixed by the court in its discretion in a
reasonable amount.
3 The exact attorney's fees award would be $300,850,
calculated by employing the "contested"column of the Civil Rule
82 schedule. See infra n. 21.
4 There is conflicting evidence concerning just what
Allstate offered at this point. Barbara Bailey, Allstate's
claims manager for Bohna's case, testified that she offered
Nesbett "full policy limits." Nesbett testified that Bailey said
she "would offer the Rule 82 attorneys fees calculated on the
$50,000 which would be an amount somewhere between 50 and
55,000." We conclude that Allstate never made a "policy limits"
offer. See infra Part D.3.
5 The disagreement on the correct percentage for which
Allstate was liable arose because Civil Rule 82 provides three
schedules by which to compute attorney's fees: contested,
contested without trial, and noncontested. Nesbett insisted that
Allstate's policy provided coverage for attorney's fees on the
"contested" basis, while Powell maintained that basis was
appropriate only if the case actually went to trial.
6 Civil Rule 68 provides in part that if the offer is more
favorable than the offeree's final judgment then the offeree will
not only be ineligible to recover his or her costs and attorney
fees incurred after the offer was made, but also will be liable
for such fees incurred by the offerer.
7 If accepted, Allstate would not have been responsible for
the face value of the offer of judgment. Rather, Allstate's
liability would still be governed by its contract. Thus,
Allstate would be liable for the face value of the policy,
attorney's fees, and costs. Attorney's fees would be calculated
as a percentage of a $500,000 judgment, probably under the non-
contested column of Civil Rule 82, and thus would have amounted
to no more than $25,525. See generally supra notes 2 & 4. The
balance would be the responsibility of Bohna. Powell, Allstate,
and Bohna anticipated that this would be discharged in
bankruptcy.
8 Fees on offers of judgment were thereby to be calculated
under the "without trial"instead of the "non-contested"column.
9 The new schedule provided:
Unless the court, in its
discretion, otherwise directs, the following
schedule of attorney's fees will be adhered
to in fixing such fees for the party
recovering any money judgment therein:
ATTORNEY'S FEES IN AVERAGE CASES
Judgment
and, if
awarded,
Prejudgment Without Non-
Interest Contested trial contested
First $25,000 20% 18% 10%
Next $75,000 10% 8% 3%
Next $400,000 10% 6% 2%
Over $500,000 10% 2% 1%
Should no recovery be had,
attorney's fees may be fixed by the court in
its discretion in a reasonable amount.
10 See Alaska Civil Rule 68; Truckweld Equipment Co. v.
Swenson Trucking, 649 P.2d 234, 240 (Alaska 1982); Miklautsch v.
Dominick, 452 P.2d 438, 440 (Alaska 1969); see also supra note 6.
11 This judgment initially resulted in Allstate paying a
total of $167,647.53 -- the $50,000 face value of the policy,
$116,897.53 in attorney's fees, and $750 in costs.
12 Paragraph 5 of the LRA provided that if Bohna's claims
against HT are reduced by the $3 million as "consideration paid
for"the release "then there shall be no obligation to repay the
loan."
13 The $4 million was distributed roughly as follows: 60% to
Stevens, 30% to the attorneys, 10% divided between Bohna and a
fund to finance the litigation against HT. See infra Part B.7.
14 The trial court's calculations ran as follows:
$4,737,524.25 = Amount of
Stevens judgment (including
costs, fees and prejudgment
interest).
- 750.00 = Costs
paid.
- 50,000.00 =
Policy face value paid.
- 116,897.53 = Attorney
fees on unpaid judgment as
$4,569,876.72 of 10-30-
86 (actually paid with
interest January 1988).
+1,569,668.22 = 1194 days
of prejudgment interest at
$1,314.63 per day (10.5% per
annum) from Oct. 30, 1986 to
Feb. 6, 1990.
$6,139,544.94 = Verdict
before deductions for jury
findings re: plaintiff's
failure to mitigate and for
amounts received from settling
joint tortfeasors.
15 Under current law which became effective on March 5, 1989,
the court is to "enter judgment against each party liable on the
basis of several liability in accordance with that party's
percentage of fault." AS 09.17.080(d).
16 In October of 1986, AS 09.17.080(d) provided:
The court shall enter judgment
against each party liable on the basis of
joint and several liability, except that a
party who is allocated less than 50 percent
of the total fault allocated to all of the
parties may not be jointly liable for more
than twice the percentage of fault allocated
to that party.
17 HT also argues that Bohna was comparatively negligent in
failing to consult with independent counsel more than once
regarding the excess offer strategy. In light of representations
made by HT discussed below, we find that HT has waived this
argument.
18 HT also argues that this issue is not properly before the
court since Bohna did not list it in his Statement of Points on
Appeal. However, Bohna listed as error the "making [of] any
deduction from the verdict amount for any supposed fault of
Phillip Bohna." This covers the issue of failure to mitigate
damages.
19 A number of authorities support this holding. See
Levantino v. Insurance Co. of North America, 422 N.Y.S.2d 995,
1002 (Sup. Ct. 1979) ("Nor should a plaintiff be required to
undergo a bankruptcy in order to benefit the wrongdoer who has
caused his financial distress in the first place. To be
compelled to seek a bankruptcy discharge under such circumstances
may be a significant loss for the sensitive or those who have a
reasonable likelihood of ever requiring credit."); Alford v.
Textile Ins. Co., 103 S.E.2d 8, 12 (N.C. 1958) (dictum) (The
insurer's liability would not "be affected or diminished by the
question of solvency or insolvency of its insured."); Southern
Fire & Casualty Co. v. Norris, 250 S.W.2d 785, 792 (Tenn. App.
1952) (quoting Schwartz v. Norwich Union Indem. Co., 250 N.W.
446, 446 (Wis. 1933) ("Neither the right of action nor the
measure of damages depends upon the fact of [the insured's]
payment" of the underlying liability.); 22 Am. Jur. 2d Damages
502 ("The doctrine of avoidable consequences does not include . .
. filing for bankruptcy."); Keeton, Liability Insurance and
Responsibility for Settlement, 67 Harv. L. Rev. 1136, 1181 (1954)
(In an excess judgment situation, "[t]here should be no duty [on
the part of the insured] to go through bankruptcy.").
20 In this probable liability, catastrophic injury case,
Allstate had the duty to make a policy limits offer to Stevens.
Schultz v. Travelers Indem. Co., 754 P.2d 265, 266-67 (Alaska
1988) (per curiam). This included "the amount of attorney's fees
which would have been awarded had [the] case gone to trial." Id.
at 267. As a result of obtaining Bohna's consent to the excess
offer strategy, Allstate ended up paying attorney's fees on the
"contested without trial"column of $116,897.53. By contrast the
attorney's fees which would generally have been awarded on a $4.6
million judgment following a trial would have been $462,500.
Thus, total policy limits were approximately $512,500, assuming,
as HT thought, a probable verdict in the principal amount of $3
million, when pre-judgment interest is taken into account.
21 The legislature has determined that it is a matter of
grave concern that motorists be financially responsible for their
negligent acts so that innocent victims of motor vehicle
accidents may be recompensed for the injury and financial loss
inflicted upon them. AS 28.20.010.
22 HT argues that Allstate lacks standing to appeal the Bohna
judgment because it is not a party to that judgment. Although
Allstate's interest is not literally direct since the recovery
would go initially to Bohna, Allstate has a strong interest in
the matter. The LRA provides that Allstate gets the first $3
million plus interest from Bohna's recovery in the litigation
against HT. Consequently, Allstate suffered an "injury-in-fact"
by the trial court's partial setoff of the loan, and thus
Allstate can provide "the adversity which is fundamental to
judicial proceedings." Moore v. State, 553 P.2d 8, 23 (Alaska
1976). Allstate thus has standing to appeal the Bohna judgment.
23 HT in fact contends that $1,075,000 in addition to the $3
million loan and the $1 million settlement amount should be
deducted from the final judgment because of the way the $4
million was distributed. We fail to see how deducting more than
the $4 million that Allstate paid might be justified under any
theory.
24 For more details on the history of loan receipts, see
Annotation, Insurance: Validity and Effect of Loan Receipt or
Agreement Between Insured and Insurer for a Loan Repayable to
Extent of Insured's Recovery from Another, 13 A.L.R.3d 42 (1967)
[hereinafter "Annot., 13 A.L.R. 3d"].
25 We have come across LRA's in this context as well. In
Municipality of Anchorage v. Baugh Construction & Engineering
Co., 722 P.2d 919 (Alaska 1986), we determined that an LRA
between a municipality and its insurer caused the insurer to
become a "real party in interest"under Civil Rule 17(a). Id. at
925.
26 Some of these agreements guarantee the plaintiff a
certain recovery without providing the plaintiff with a loan.
However, they are substantially the same as LRA's in that the
plaintiff is guaranteed a certain recovery and the settling
defendant's ultimate liability is inversely related to the
plaintiff's success against the nonsettling defendants. Some of
the cases cited below labelled these agreements as Mary Carter
agreements, Sliding Scale agreements, or Gallagher covenants.
For ease of discussion, we do not distinguish between these
different labels.
27 See, e.g., Moore v. Subaru of America, 891 F.2d 1445 (10th
Cir. 1989) (LRA not a valid loan transaction under Oklahoma law).
28 AS 09.16.010(d) (repealed eff. 3/5/89) provided:
A tortfeasor who enters into a
settlement with a claimant is not entitled to
recover contribution from another tortfeasor
whose liability for the injury or wrongful
death is not extinguished by the settlement
nor in respect to any amount paid in a
settlement which is in excess of what was
reasonable.
29 HT also argues that the LRA compromises jury selection
because the settling defendant will use its peremptory challenges
for the plaintiff's benefit. We discuss this concern later and
find it to be groundless. See infra note 47.
30 In Breitkreutz v. Baker, 514 P.2d 17, 29 n.30 (Alaska
1973), we noted that juries should be informed when settlements
change the normal interests of a party. This admonition was
followed in this case as the LRA was an exhibit for the jury to
review, HT cross-examined witnesses about the LRA, and HT painted
its own picture of the LRA in its opening and closing
statements. This type of full disclosure to the jury is what
distinguishes the present case from Lum v. Stinnett, 488 P.2d 347
(Nev. 1971), a case relied on heavily by HT.
31 We are not alone in rejecting the argument that an LRA
constitutes an assignment of a cause of action. See, e.g.,
Cullen v. Atchinson, Topeka & Santa Fe Ry. Co., 507 P.2d 353, 360
(Kan. 1973); O'Howell v. Continental Ins. Co., 654 S.W.2d 308
(Mo. App. 1983). But see Tober v. Hampton, 136 N.W.2d 194 (Neb.
1965).
32 Under Alaska's Uniform Contribution Among Tortfeasors Act,
the settlement is valid as long as it was entered into in good
faith. We have indicated that this does not require that the
settling parties advance the interests of the nonsettling
defendant. Rather, they must simply refrain from "tortious or
other wrongful conduct." Vertecs Corp. v. Fiberchem, Inc., 669
P.2d 958, 961 (Alaska 1983) (quoting Dompeling v. Superior Court,
173 Cal. Rptr. 38 (Cal. App. 1981)).
33 An identical provision is codified as AS 09.17.090 (eff.
6/11/86) and was repealed in 1987, chapter 14, section 17, SLA
1987. This section is also identical to 4 of the Uniform
Contribution Among Tortfeasors Act, 12 U.L.A. 98 (1975).
34 California takes a third approach under which the
"economic value" of the LRA is deducted. Abbot Ford Inc. v.
Superior Court, 741 P.2d 124 (Cal. 1987). This is left in the
first instance for the settling parties to determine. Under
California law, the concept of good faith has been defined
broadly so that a settlement amount which is so low as to be, as
the California court puts it, "out of the ballpark" is not in
good faith, and thus the settlement is invalid. Therefore, in
California the parties have some incentive to express a
reasonable consideration. We define the concept of good faith
more narrowly than California. Under Alaska law, what is
required is honesty and disclosure but not a concern for the
effect of the settlement on other defendants. Vertecs Corp. v.
Fiberchem, 669 P.2d 958, 961 (Alaska 1983). Thus, permitting the
parties to a settlement to determine the "economic value" of an
LRA would not be acceptable under Alaska law.
35 Moreover, we know of no case other than Abbot Ford which
has squarely come to grips with the question of whether the term
"consideration paid"includes an amount loaned. As previously
discussed, we do not believe that the Abbot Ford approach is
advisable in Alaska. See supra note 34.
36 AS 09.16.050 provides: "This chapter shall be interpreted
and construed as to effectuate as far as practical the general
purpose of making uniform the law of those states that enact it."
37 See supra note 14.
38 In his complaint, Bohna alleged that "Hughes Thorsness
recklessly and wantonly disregarded the legitimate interests of
Bohna as . . . legal client . . ., and with prior knowledge that
said conduct was wrongful as herein described." Bohna requested
$12,000,000.00 in punitive damages.
39 Civil Rule 9(b) provides:
In all averments of fraud or mistake,
the circumstances constituting fraud or
mistake shall be stated with particularity.
Malice, intent, knowledge, and other
condition of mind of a person may be averred
generally.
40 This argument is in addition to the argument previously
discussed and rejected that Bohna's claim against HT should have
been dismissed because the LRA constituted an illegal assignment
to Allstate. See supra Part A.3, pp. 27-28.
41 Although Barker did not testify until after HT's motion
for a directed verdict, his testimony is properly considered on
appeal. Cf. Martin v. City of Fairbanks, 456 P.2d 462, 464
(Alaska 1969) ("On appeal the record as a whole is viewed, not
just the prosecution's case-in-chief, regardless of when a motion
of acquittal is made."). We have applied Martin's reasoning in
the civil context as well. See United Bank Alaska v. Dischner,
685 P.2d 90, 94 n.5 (Alaska 1984) ("All of the evidence
regardless of which party has introduced it should be considered
in determining whether a presumption has been rebutted.") (citing
Martin).
42 For the same reasons, we find no error in the denial of
HT's motion for judgment notwithstanding the verdict.
HT also disputes the trial court's denial of HT's motion for
a new trial. However, upon reviewing the entire record, we
cannot say that the "evidence to support the verdict was
completely lacking or was so slight and unconvincing as to make
the verdict plainly unreasonable and unjust." Sloan v. Atlantic
Richfield Co., 541 P.2d 717, 724 (Alaska 1975) (quoting Ahlstrom
v. Cummings, 388 P.2d 261, 262 (Alaska 1964)). Indeed, for us to
reach that conclusion, we would have to discount the testimony of
Barker, a witness called by HT.
43 Bohna also argues that HT is precluded from raising this
issue now because it never objected to the trial court's decision
to award each party the same number of peremptory challenges.
However, the trial transcript reveals that, prior to voir dire,
HT raised the issue, received an adverse ruling, and indicated
the basis of its disagreement with that ruling. The point was
therefore properly preserved. See Alaska R. Civ. P. 46(f); see
also Blades v. DaFoe, 704 P.2d 317, 323 (Colo. 1985).
44 Initially, the court allowed each party three peremptory
challenges, but by agreement of the parties relating to the issue
of alternate jurors, this was subsequently raised to four.
45 Alaska Civil Rule 61 provides:
No error in either the admission or
the exclusion of evidence and no error or
defect in any ruling or order or in anything
done or omitted by the court or by any of the
parties is ground for granting a new trial or
for setting aside a verdict or for vacating,
modifying or otherwise disturbing a judgment
or order, unless refusal to take such action
appears to the court inconsistent with
substantial justice. The court at every
stage of the proceeding must disregard any
error or defect in the proceeding which does
not affect the substantial rights of the
parties.
46 A party has a right to an impartial jury, not to have
certain individuals on the jury, as suggested by HT.
47 Here, as in Goldstein v. Kelleher, 728 F.2d 32 (1st Cir.
1984),
[t]here is nothing to show either that
[the complaining party] was dissatisfied with
any of the jurors finally selected or wished
to select someone else. We think that before
a reversal is granted, the complaining party
should be able to point to some convincing
indication in the record that if a further
peremptory challenge had been allowed, he
meant to challenge one or more jurors.
728 F.2d at 38.
48 In the federal courts, which have a harmless error rule
similar to Alaska Civil Rule 61, "one who does not exercise all
of his peremptory challenges cannot assign as error the court's
refusal to allow a greater number." Goldstein v. Kelleher, 728
F.2d 32, 37 (1st Cir. 1984).
49 The full text of the document reads:
COVENANT NOT TO EXECUTE
I, Anthony Stevens, hereby covenant
not to execute upon the judgment which I have
obtained against Phillip Bohna in the case of
[Stevens v. Bohna] except:
1. To the extent that Phillip
Bohna obtains a recovery against Hughes,
Thorsness, Gantz and Brundin in the case
entitled [Bohna v. Hughes Thorsness].
This [supersedes] my previous
partial covenant not to execute upon Mr.
Bohna in which I agreed not to execute during
only the pendency of [Bohna v. Hughes
Thorsness]. By this covenant, I agree not to
execute on any assets of Mr. Bohna, except
proceeds from the above lawsuit, forever.
50 Allstate made the motion after Bohna had sued Allstate but
before they had settled.
51 Allstate argued that the $3 million Rule 68 offer of
judgment which Stevens eventually accepted was in reality nothing
more than a "contract whose sole purpose was to establish a basis
for the calculation of Rule 82 attorney's fees owed under Bohna's
insurance policy." However, if the parties simply wanted to
agree on the measure of Rule 82 attorney's fees, they could
easily have done so explicitly.
52 HT also introduced expert testimony that Powell and HT met
the standard of care owed to Bohna.
53 In its August 17, 1989 Decision and Order, the trial court
ruled as a matter of law that Allstate had breached its duty to
make a "policy limits"offer because it never made an offer which
was capable of dollar value determination. This ruling was based
on the retroactive application of our decisions in Providence
Washington Ins. Co. v. Fireman's Fund Ins. Cos., 778 P.2d 200
(Alaska 1989) and Schultz v. Travelers Indem. Co., 754 P.2d 265
(Alaska 1988) (per curiam). The trial court informed the jury of
its ruling, but not the reasoning upon which it was based.
54 HT attacks the instruction as inadequate because the
instruction provided that "[n]o one else has the duty to
determine the dollar value of the policy limits for an insurance
company," instead of stating that HT did not have such a duty.
We fail to see any significant difference in meaning.
55 HT complains that its proposed Instructions 10 and 11
were not given. They would basically have instructed the jury
that an attorney is not at fault for honest mistakes in judgment.
As such, they were erroneous statements of the law since an
attorney may indeed be liable for an honest mistake in judgment
if it is also a negligent mistake.
56 The proper standard of review on this question is the
abuse of discretion standard. See Magestro v. State, 785 P.2d
1211, 1212 (Alaska 1990).
57 Citing Wright v. Vickaryous, 598 P.2d 490, 496 (Alaska
1979), Allstate contends that the trial court should have granted
a continuance to allow the amended cross-claim. However,
considering the number of witnesses involved, the proximity of
the scheduled trial date, and the difficulties inherent in
rescheduling such a large trial, we are not left with the
definite and firm conviction that the trial court erred.
58 Although we decided both Schultz and Providence Washington
after Allstate's wrongful conduct, the principles articulated in
Schultz and Providence were not a change in the law and could
have readily been anticipated based on Alaska case law existing
at the time of Allstate's wrongful conduct. See e.g., Insurance
Co. of North America v State Farm Mutual Auto. Ins. Co., 663 P.2d
953, 954 n.1 (Alaska 1983) ("[S]ettlement . . . was apparently
intended to be within its policy limits inasmuch as [the amount
of the settlement in excess of the bodily injury limit] is
doubtlessly not more than the costs and attorney's fees which
would have been assessed had the case gone to trial."); Salmine
v. Knagin, 645 P.2d 148, 150 n.8 (Alaska 1982) (The face amount
of the policy plus court awarded attorney's fees following trial
"could well be considered to be policy limits."); Continental
Ins. Co. v. Bayless & Roberts, Inc., 608 P.2d 281, 285 n.6
(Alaska 1980) ("The face amount of the policy was $100,000.
Since the policy also provided for payment of costs and
attorney's fees, however, the $160,000 [settlement] figure did
not necessarily exceed policy limits."). Moreover, the term
"policy limits"is self-explanatory even without any prior cases.
Policy limits necessarily are what an insurance company would
have to pay under its policy if it went to trial and received an
adverse verdict. If Allstate was genuinely confused as to the
value of policy limits, it should have filed a declaratory action
rather than exposing Bohna to personal liability.
59 In fact, actual policy limits approximated $512,500,
assuming, as Powell thought, a verdict value of no less than $3
million. See supra note 20.
60 Allstate and HT raise still more issues relating to
Allstate's indemnity claim. Allstate assigns as error the trial
court's ruling that the determination of attorney's fees and
costs in an indemnity action is a jury question. HT contends
that the trial court erroneously denied its efforts to introduce
into evidence certain of Allstate's pleadings and briefs. Both
of these issues are moot in light of today's decision that
Allstate may not recover on its indemnity claim.
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