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Hub City Construction Co. v. Wade and De Young, Inc. (6/10/94), 871 P 2d 1142
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501.
THE SUPREME COURT OF THE STATE OF ALASKA
EVERETT L. ANDREWS and HUB )
CITY CONSTRUCTION COMPANY, ) Supreme Court No. S-5542
INC., )
) Superior Court No.
Appellants, ) 3AN-92-5433 CI
)
v. ) O P I N I O N
)
WADE & DE YOUNG, INC., P.C., ) [No. 4088 - June 10, 1994]
)
Appellee. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Joan M. Katz, Judge.
Appearances: Thomas R. Wickwire,
Fairbanks, for Appellants. Thomas L.
Melaney, Anchorage, for Appellee.
Before: Moore, Chief Justice,
Rabinowitz, Matthews, Compton, Justices and
Bryner, Justice pro tem.*
RABINOWITZ, Justice.
Everett L. Andrews and Hub City Construction Co., Inc.
(collectively referred to as "Hub City") appeal the superior
court's dismissal, on res judicata grounds, of their legal
malpractice claim against Wade & De Young, Inc.
I. FACTS AND PROCEEDINGS
A. Wade & De Young's Action to Recover Its Legal Fees
Wade & De Young provided legal representation for
Moneymaker/Hub City, J/V ("Joint Venture"), in the ASHA v.
Moneymaker/Hub City, Joint Venture litigation. Following
settlement of the ASHA litigation, Hub City declined to authorize
any further payments to Wade & De Young for attorney's fees.
Wade & De Young then brought suit seeking payment of its
attorney's fees, in the amount of $690,000, earned in connection
with the ASHA litigation. In its complaint Wade & De Young also
asserted a possessory attorney lien (pursuant to AS 34.35.430),
which it sought to foreclose, and additionally sought to
interplead certain funds in its possession.
Hub City and the Joint Venture filed an answer to Wade
& De Young's complaint. Thereafter the Joint Venture petitioned
the Alaska Bar Association for arbitration of the fee dispute
pursuant to Alaska Bar Rule 39(a).1
A panel of the Alaska Bar Association Fee Arbitration
Committee (Fee Arbitration Panel) held a hearing and concluded
that the amount of compensation due Wade & De Young for its legal
services was $471,000 including all expenses, plus a pro rata
share of accrued interest.
Wade & De Young then filed a motion requesting that the
superior court confirm the Fee Arbitration Panel's award. After
considering Hub City's opposition to the motion, the superior
court confirmed the decision and award of the Fee Arbitration
Panel on July 2, 1991.
B. Hub City's Legal Malpractice Action Against Wade &
De Young
After the superior court's confirmation of the Fee
Arbitration Panel's decision and award, Hub City filed a legal
malpractice action against Wade & De Young, based upon the firm's
representation of Hub City in the ASHA litigation. Wade &
De Young subsequently filed a motion for dismissal, which the
superior court granted "on res judicata grounds."2 This appeal
followed.
II. STANDARD OF REVIEW
Wade & De Young filed a motion to dismiss pursuant to
Alaska Civil Rule 12(b)(6),3 but presented materials outside the
pleadings for the superior court's consideration.4 When this
occurs, the superior court must affirmatively state whether it
considered such materials. Homeward Bound, Inc. v. Anchorage
Sch. Dist., 791 P.2d 610, 611-12 (Alaska 1990); Brice v. State,
Div. of Forest, Land & Water Mgmt., 669 P.2d 1311, 1314 (Alaska
1983); cf. Adkins v. Nabors Alaska Drilling, Inc., 609 P.2d 15,
21 n.11 (Alaska 1980) (holding that whenever materials outside
the pleadings are presented, the motion to dismiss is
automatically converted to a motion for summary judgment unless
the superior court expressly states that it is not considering
the outside materials). If the superior court fails to state
expressly what materials it considered, this court may "remand
for proper consideration, review the decision as if the Rule
12(b)(6) motion was granted after exclusion of the outside
materials, or review the decision as if the court granted a
motion for summary judgment." Homeward Bound, 791 P.2d at 612.
In this case, the superior court's holding that res judicata
applies clearly evidences its reliance upon materials outside the
pleadings regarding the fee recovery action. Therefore, we will
review the decision as if the superior court had entered summary
judgment.5
III. DISCUSSION
Hub City asserts that the superior court erroneously
dismissed its legal malpractice claim because (1) Wade & De Young
failed to show that Hub City's legal malpractice claim existed at
the time Hub City answered Wade & De Young's complaint for unpaid
legal fees; and (2) the Fee Arbitration Panel lacked jurisdiction
to decide any malpractice claims Hub City had against Wade &
De Young and therefore collateral estoppel cannot be based upon
the decision of the Fee Arbitration Panel.
A. The Superior Court Erroneously Granted Summary
Judgment as to Wade & De Young's Claim that Hub City
Failed to Comply with the Compulsory Counterclaim
Provisions of Civil Rule 13(a)
Alaska Civil Rule 13(a) makes counterclaims compulsory
in the following circumstances:
A pleading shall state as a counterclaim
any claim which at the time of serving the
pleading the pleader has against any opposing
party, if it arises out of the transaction or
occurrence that is the subject matter of the
opposing party's claim . . . .
Failure to assert a compulsory counterclaim bars a
party from bringing a later independent action on that claim.
See Miller v. LHKM, 751 P.2d 1356, 1359 (Alaska 1988); Wells v.
Noey, 399 P.2d 217, 220 (Alaska 1965). Since Hub City's legal
malpractice action against Wade & De Young arises from the same
litigation forming the basis for Wade & De Young's fee recovery
action, Civil Rule 13(a) would preclude Hub City's legal
malpractice action if the claim existed at the time Hub City
served its answer in the fee recovery action.6 A cause of action
for attorney malpractice does not mature until "the client
discovers or reasonably should have discovered the existence of
all the elements of his cause of action." Wettanen v. Cowper,
749 P.2d 362, 364 (Alaska 1988).
In its briefing to this court, Wade & De Young argues
that the facts establish that Hub City was aware of its
malpractice claims prior to the superior court's July 1, 1991
confirmation of the Fee Arbitration Panel's award. This argument
is grounded on the assertion that "every allegation made in the
complaint which initiated the malpractice action was made at some
phase of the fee dispute." Wade & De Young further notes that
"corroboration of Hub City's knowledge of the existence of
alleged malpractice claims rather early on in the fee dispute
proceeding is found in the Offer of Judgment dated May 11,
1990."7
The Offer of Judgment provided in part that Hub City would
release Wade & De Young from all claims "including specifically
those which arise or may arise out of [Wade & De Young's
representation of Hub City in the ASHA litigation.]"
The flaw in Wade & De Young's position is that the
superior court failed to state affirmatively that it was
considering matters outside of the pleadings, thus converting
Wade & De Young's Civil Rule 12(b)(6) motion to one for summary
judgment. In Martin v. Mears, 602 P.2d 421, 426 (Alaska 1979),
we held that "all trial courts must expressly state whether they
have in fact excluded or considered such materials in reaching
their decisions." As a consequence of the superior court's
consideration of outside materials it was under "a mandatory
duty" to treat Wade & De Young's motion as one for summary
judgment and to dispose of it as provided in Rule 56 after giving
the parties a reasonable opportunity to present all material made
pertinent to such a motion by Rule 56. Id.; accord Reed v.
Municipality of Anchorage, 741 P.2d 1181, 1184 (Alaska 1987);
Civil Rule 12(b).
Assuming that Wade & De Young made an appropriate
showing in accordance with Civil Rule 56, the superior court's
failure to give notice of its conversion of the Rule 12(b) motion
denied Hub City a reasonable opportunity to present all material
made pertinent to such a motion by Rule 56. The bulk of Wade &
De Young's documentation upon which a grant of summary judgment
could possibly rest is found in its reply memorandum to Hub
City's opposition to Wade & De Young's motion to dismiss. Hub
City had no opportunity to respond to the reply memorandum with
affidavits or other admissible evidence showing the existence of
genuine issues of material fact as to when it discovered or
should have discovered its legal malpractice claims against Wade
& De Young.
We therefore conclude that on this record Wade &
De Young was not entitled to summary judgment dismissing Hub
City's legal malpractice action based upon Hub City's failure to
assert this claim as a compulsory counterclaim in the fee
recovery action.
B. The Fee Arbitration Panel's Decision and Award
Does Not Collaterally Estop Hub City from Instituting
and Maintaining a Malpractice Action
Wade & De Young argues that Hub City's claims are also
barred under the doctrine of collateral estoppel, based upon the
Fee Arbitration Panel's decision.8 Application of collateral
estoppel requires three elements:
1) The plea of collateral estoppel must
be asserted against a party or one in privity
with a party to the first action;
2) The issue to be precluded from
relitigation by operation of the doctrine
must be identical to that decided in the
first action;
3) The issue in the first action must
have been resolved by a final judgment on the
merits.
McKean v. Municipality of Anchorage, 783 P.2d 1169, 1171 (Alaska
1989) (quoting Murray v. Feight, 741 P.2d 1148, 1153 (Alaska
1987)).9 There is identity of parties in the fee arbitration
proceeding and in the legal malpractice action,10 and a final
decision and award on the merits was rendered in the fee
arbitration proceeding.11 Whether collateral estoppel applies
thus turns on whether the issues in the fee arbitration
proceeding and in the legal malpractice action are identical.
The fee arbitration proceeding involved the amount the
Joint Venture and Hub City owed Wade & De Young for legal
services rendered in the ASHA litigation. The legal malpractice
litigation involves whether Wade & De Young committed malpractice
during the course of its representation of Hub City in the ASHA
litigation. In its fee arbitration decision and award, the Fee
Arbitration Panel made no findings regarding Wade & De Young's
malpractice. Furthermore, Wade & De Young concede that the Fee
Arbitration Panel lacks jurisdiction to adjudicate malpractice
claims.12 Resolution of a fee dispute is different from
adjudication of a malpractice claim. While preclusion could
arise based upon an arbitrator's decision, the Fee Arbitration
Panel's decision and award does not bar Hub City's malpractice
action, because the two proceedings implicate different legal and
factual issues.
IV. CONCLUSION
We hold that Wade & De Young is not entitled to summary
judgment. In the particular context of this record, we conclude
that Wade & De Young failed to prove that no genuine issue of
material fact exists as to whether Hub City had discovered or
should have discovered its malpractice action at the time Hub
City served its answer in Wade & De Young's suit to recover
attorney's fees. As such, Wade & De Young has not shown that Hub
City failed to comply with the compulsory counterclaim provisions
of Civil Rule 13(a). Collateral estoppel does not arise from the
Fee Arbitration Panel's decision and award because the fee
arbitration proceeding and the legal malpractice action did not
involve identical issues. We therefore REVERSE the superior
court's dismissal of Hub City's malpractice action, and REMAND
for further proceedings consistent with this opinion.
_______________________________
* Sitting by assignment made pursuant to article IV,
section 16 of the Alaska Constitution.
1 In accordance with Alaska Bar Rule 39(a) Wade &
De Young's complaint notified Hub City that it had the "right to
file a Petition for Arbitration of Fee Dispute and stay this
civil action."
2 The superior court cited Tolstrup v. Miller, 776 P.2d
1304 (Alaska 1986), in support of its decision. The superior
court subsequently entered a Judgment of Dismissal, which
dismissed Hub City's legal malpractice complaint with prejudice.
3 Civil Rule 12(b)(6) provides for dismissal of an
action for failure to state a claim upon which relief may be
granted.
4 Civil Rule 12(b) provides in part:
If, on a motion asserting the defense
numbered (6) to dismiss for failure of the
pleading to state a claim upon which relief
can be granted, matters outside the pleading
are presented to and not excluded by the
court, the motion shall be treated as one for
summary judgment and disposed of as provided
in Rule 56, and all parties shall be given
reasonable opportunity to present all
material made pertinent to such a motion by
Rule 56.
5 In reviewing summary judgment, this court
determines whether there are any genuine issues of material fact,
and whether the moving party is entitled to judgment as a matter
of law. Drake v. Hosley, 713 P.2d 1203, 1205 (Alaska 1986).
6 Hub City also argues on appeal that there is no
compulsory counterclaim requirement for interpleader actions. In
LHKM, 751 P.2d at 1361-62, we rejected a similar contention.
7 Hub City filed its answer in the fee recovery action on
May 3, 1990.
8 Both parties and the superior court refer to "res
judicata." "Res judicata"includes the doctrines of merger, bar,
direct estoppel, and collateral estoppel. Restatement (Second)
of Judgments ch. 3 intr. note (1982); see also Jeffries v.
Glacier State Tel. Co., 604 P.2d 4, 8 n.11 (Alaska 1979). Merger
and bar involve claim preclusion, and direct estoppel involves
issue preclusion based upon an earlier determination of the same
claim. Restatement (Second) of Judgments ch. 3 intr. note
(1982). Merger, bar, and direct estoppel are not implicated in
this case, so our discussion is limited to collateral estoppel.
9 When a subsequent action is based upon a different
cause of action, collateral estoppel prevents the relitigation of
issues determined in the first action. Jeffries, 604 P.2d at 8
n.11.
10 In support of its argument that there is no identity
of
parties, Hub City suggests that the fee recovery action involved
only the Joint Venture, not Hub City or Andrews in his individual
capacity. This argument is without merit. Hub City was a named
defendant in the fee recovery action and submitted an answer.
Andrews brings the malpractice claim based upon his capacity as
president and shareholder of Hub City. Based upon the record, we
can discern no distinction between Hub City's interests and
Andrews' interests. That Andrews was not a named party to the
fee recovery action does not, therefore, preclude a holding of
identity of parties.
11 After the panel's decision was confirmed by the
superior court, Wade & De Young's fee recovery action was
dismissed with prejudice.
12 Alaska Bar Rule 34(c) states in part:
All disputes concerning fees charged for
professional services or costs incurred by an
attorney are subject to arbitration under
these rules except for:
. . . .
(2) disputes where the client
seeks affirmative relief against the attorney
for damages based upon alleged malpractice or
professional misconduct . . . .
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