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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Pederson v. Barnes (07/21/2006) sp-6023
Notice: This opinion is subject to 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, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| LAWRENCE A. PEDERSON and | ) |
| PAUL J. NANGLE, | ) Supreme Court No. S- 11621 |
| ) | |
| Appellants, | ) |
| ) Superior Court No. | |
| v. | ) 4FA-01-1865 CI |
| ) | |
| BRIENNE BARNES and | ) O P I N I O N |
| JAMES A. AIKEN, | ) |
| ) | |
| Appellees. | ) [No. 6023 - July 21, 2006] |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District,
Fairbanks, Mark Wood, Judge.
Appearances: R. N. Sutliff, Anchorage, for
Appellants. Edmond W. Burke, Burke &
Bauermeister, P.L.L.C., Anchorage, for
Appellee Brienne Barnes.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
MATTHEWS, Justice.
I. INTRODUCTION
This case presents two new questions of law. First, in
which circumstances is a guardians lawyer liable to the ward for
the guardians wrongdoing? We adopt the Restatement standard and
conclude that liability exists only if the lawyer knew or had
reason to know of the wrongdoing. Second, which liability regime
applies in duty-to-protect cases? Based on the legislative
history behind AS 09.17.900, we determine that pure several
liability applies.
II. FACTS AND PROCEEDINGS
A. Facts
Brienne Barness parents died in Fairbanks on February
21, 1997, when her father killed her mother and then killed
himself. Barnes was eleven years old at the time. James Aiken
was Barness maternal uncle, and was the mothers only immediate
adult relative. Aiken promptly traveled from San Francisco to
Fairbanks and contacted Lawrence Pederson, an attorney in
Anchorage, to represent him in his petition to become Barness
guardian.
On February 28, 1997, a guardianship hearing was held
in Fairbanks, presided over by Standing Master Alicemary Closuit,
who approved Aikens appointment as guardian. After his
appointment, Aiken moved from San Francisco and lived in
Fairbanks with Barnes. Approximately twenty-one months later, in
November 1998, Barness therapist sent a letter to the court,
which found its way to Pederson. In the letter, Barness
therapist said that there were indications that Aiken was
spending Barness money on himself e.g., that Aiken was
unemployed, that he had purchased a home in his name, and that he
was buying expensive medicines for himself and his pets.
In response to this letter, Pederson spoke to Aiken,
who assured him that Barness money had been invested with a San
Francisco friend of Aikens who was in the investment business.
Aiken provided Pederson with financial statements, which are
described below. Pederson had Aiken confirm that the investor
friend was a certified investment person and was licensed and
bonded. However, Pederson never attempted to contact the
investment company to verify that it existed and that it had
Barness money. Pederson also spoke to Joyce Parks, a Fairbanks
real estate agent who had become close to Aiken in the course of
helping him find a house (and who eventually uncovered Aikens
fraud and then brought this lawsuit against both Aiken and
Pederson). She told Pederson that the therapist was a loose
cannon and was not to be trusted. It also appears that Pederson
unsuccessfully attempted to talk to the therapist.
On December 9, 1998, Pederson filed a report with the
court on Aikens behalf, in which he attempted to refute the
allegations made by the therapist. The report said that Aiken
was receiving workers compensation plus $800 a month in what is
effectively child support and that Medicaid was paying his
medication bills. The report also listed Barness assets and
tried to match current assets up to the original sources of
assets. According to the report, Barnes had assets of
approximately $49,000, almost all of it invested in trust with
Heid Investment Company. The sources of these assets were:
$33,000 in crime victim compensation and Public Employee
Retirement System benefits accrued by Barness mother; two years
worth of permanent fund dividends for Barnes; and $1,070 per
month paid to Barnes in social security benefits. Pederson
stated in the report that the $49,000 total did not include a
pending payment of $34,000 from the state Supplemental Benefits
System (SBS).
Pederson attached to the report what appeared to be
account statements from an entity called Heid Investment Company.
These reports showed two account statements on Heid letterhead,
with address, telephone number, and HIC logo. One statement
purported to be a Transaction Report for Investment Account
Number 57426113451 James A. Aiken in trust for Brienne Barnes.
It showed Deposits of $34,251.71, Losses of $7,371.77, Profits of
$17,472.53, and an Account Total of $44,352.47 as of November 15,
1998. The second statement was titled Transaction Report for
Money Market Account Number 57426113451 James A. Aiken in trust
for Brienne Barnes. It showed Deposits on various dates totaling
$3,051, Interest to 11/15/98 of $381.37, and an Account Total of
$3,432.37. As would be pointed out later, after Aikens fraud was
discovered, the money market account implied an incredibly high
return for money market funds.
On December 10, 1998, Master Closuit held a hearing.
The only people present were Aiken and Pederson (who appeared by
telephone). Master Closuit seemed persuaded by the December 9
report, made Aiken affirm under oath that everything in it was
true, and said she would recommend that Superior Court Judge
Charles R. Pengilly approve the report and continue Aikens
guardianship.
A week later, before Master Closuits recommendation was
approved by the superior court, Pederson, on Aikens behalf, filed
a supplement to the report. The supplement explained that the
December 9, 1998 report inadvertently omitted one account, a
certificate of deposit worth $40,274.18 held through Heid. With
the CD, Barness assets totaled $89,167.53, as opposed to the
$49,000 shown in the December 9 report. Attached to the
supplement was the Heid account statement, which purported to
show Interest to 11/15/98 of $3,494.11 on the certificate of
deposit. Again, the interest implies a remarkable return on a
certificate of deposit of almost ten percent over a period of
less than a year.
On Master Closuits recommendation, and based on the
report, the supplement and Mr. Aikens testimony, Judge Pengilly
determined that the allegations in the therapists letter were
groundless and approved the continuation of the guardianship.
By the summer of 1999, Parks had apparently lost
confidence in Aiken. She petitioned to become a guardian, and
eventually became co-guardian with Aiken. In October 1999 she
discovered that the Heid accounts did not exist and informed
Pederson. Pederson then quickly discovered for himself that Heid
Investment Company did not exist and that the phone number on the
account statements was fictitious. He promptly informed the
court. Aiken was eventually convicted of theft in the first
degree, after it was discovered that the $111,000 in estate
assets had been reduced to less than $200.
B. Proceedings
Joyce Parks, as guardian for Barnes, filed a lawsuit
against Aiken, Pederson, and Paul J. Nangle, another attorney
associated with Pederson.1 In the count directed at Pederson and
Nangle, the complaint alleged that Pederson had a duty to Barnes
to use due care to determine and ensure that [her] assets were
not placed in jeopardy, and that his violation of this duty
constituted negligence and malpractice. Pederson and Nangle
moved for summary judgment, in part based on Pedersons argument
that he had not had actual knowledge of Aikens wrongdoing, and
that absent this knowledge he could not have breached any duty he
might have owed to Barnes. Barnes opposed the motion with an
affidavit from Bruce Gagnon, an Anchorage attorney, opining that
Pederson knew or had reason to know of Aikens fraud, based in
part on the high returns shown in the Heid statements. The
superior court denied Pedersons motion. Relying on Fickett v.
Superior Court of Pima County,2 the court held that Pederson
could be liable if he knew or should have known of the fraud.
The superior court concluded that there was at least a question
of fact as to whether Pederson knew or should have known of
Aikens fraud.
The case was then tried to a jury. At the close of
Barness case, Pederson and Nangle moved for a directed verdict
absolving them of liability for punitive damages; this motion was
denied. They also moved for entry of judgment against Aiken in
the approximate amount of $82,000, which was the amount Aiken had
been ordered to pay as restitution in his criminal case. This
motion was not opposed by Barnes and was granted by the court.
The jury returned a special verdict finding that on
November 16, 1998 (the date the superior court (1) received the
therapists allegations that Aiken may have been stealing money
and (2) ordered a hearing about the allegations), Pederson
breached his duty of care. The jury awarded compensatory damages
of $8,473.61 the amount of money found by the jury to have been
stolen from Barnes after that date. The jury also found that
Aiken was sixty percent at fault and that Pederson was forty
percent at fault for the compensatory damages. Finally, the jury
found that Pederson should be liable for $37,500 in punitive
damages, and that Aiken should be liable for $75,000 in punitive
damages. Pederson and Nangle moved for a JNOV, but this was
denied.
Superior Court Judge Mark Wood then entered judgment on
these verdicts. Judge Wood entered judgment against Pederson and
Nangle jointly, holding them liable for the full $8,473.61 in
economic loss that occurred after November 1998, notwithstanding
the jurys allocation of sixty percent of the fault for that loss
to Aiken. The court also entered judgment against them for the
$37,500 in punitive damages awarded against Pederson by the jury.
III. DISCUSSION
A. Pedersons Motion for Summary Judgment.
In order to be liable to Barnes for damages she
suffered as a result of Aikens wrongdoing, Pederson must have
breached a legal duty that he owed to Barnes.3 When Pederson
moved for summary judgment, he argued that he had no actual
knowledge of Aikens wrongdoing and that absent this knowledge he
could not have breached any duty he might have owed to Barnes.
The superior court concluded that Pederson, in his representation
of Aiken as Barnes guardian, owed a legal duty of care to not
adversely affect Barnes interest in the guardianship estate.
Moreover, the superior court determined that a question of
material fact existed about [w]hether Pederson knew or should
have known that Aiken was mismanaging or wasting the guardianship
estate. As a result, the superior court denied Pederson summary
judgment.
We review a superior court order denying summary
judgment de novo.4 [I]f a genuine issue of material fact exists
or the moving party was not entitled to judgment as a matter of
law we affirm the denial.5 A material issue of fact exists where
reasonable jurors could disagree on the resolution of a factual
issue. Facts are to be viewed in the light most favorable to the
nonmoving party.6
In his appeal, Pederson argues that the superior court
applied the wrong legal standard when determining the parameters
of the legal duty he owed to Barnes. Pederson argues that the
superior court, when considering Pedersons motion for summary
judgment, should not have asked whether Pederson knew or should
have known of Aikens misconduct, but should instead have applied
the Restatement7 standard and asked just whether Pederson knew of
the wrongdoing. Because it is undisputed that Pederson had no
actual knowledge of Aikens wrongdoing, Pederson contends that if
the superior court had applied the correct legal standard, it
could not have found a question of material fact to exist about
whether Pederson had violated his duty to Barnes. As a result,
the superior court would have had no choice but to grant summary
judgment to Pederson.
We agree with Pederson that section 51 of the
Restatement (Third) of the Law Governing Lawyers articulates the
correct standard for determining the circumstances in which a
guardians lawyer owes a duty to the guardians ward. Section 51
explains that
a lawyer owes a duty to use care . . .
. . .
(4) to a nonclient when and to the extent
that:
(a) the lawyers client is
a . . . guardian[;]
(b) the lawyer knows that
appropriate action by the
lawyer is necessary with
respect to a matter
within the scope of the
representation to prevent
or rectify the breach of
a fiduciary duty owed by
the client to the
nonclient, where (i) the
breach is a crime or
fraud or (ii) the lawyer
has assisted or is
assisting the breach;
(c) the nonclient is not
reasonably able to
protect its rights; and
(d) such a duty would not
significantly impair the
performance of the
lawyers obligations to
the client.[8]
Pedersons argument that he owed no duty to Barnes under
Restatement (Third) of the Law Governing Lawyers section 51(4)
derives from his belief that he had insufficient knowledge of
Aikens wrongdoing. Knowledge is a requirement of section
51(4)(b). However, since Pederson argues that an application of
the Restatement standard compels an award of summary judgment in
his favor, it behooves us to assess all of the elements of
section 51(4), not just section 51(4)(b). If the facts of the
case fail to satisfy any one of the elements of section 51(4),
Pederson would have no legal duty to Barnes and could not be held
liable for damages.
Beginning our analysis with section 51(4)(a), neither
side contests the fact that Pedersons client, Aiken, was Barness
guardian. It is also undisputed not only that Aiken committed a
crime when he stole his nieces money, as evidenced by his
criminal conviction, but also that his crime was facilitated by
the report that Pederson drafted and submitted to the superior
court refuting allegations of Aikens wrongdoing. As for section
51(4)(c), according to the terms of the Restatement, Barnes, a
minor at the time that her uncle stole her money, was not
reasonably able to protect her rights.9 Finally, while neither
side addresses the issue, section 51(4)(d) is also satisfied,
since it does not appear that Pederson would have violated his
obligations to Aiken had he taken the action he ultimately took
reporting Aikens wrongdoing to the court sooner.10
Since all of the other requirements of Restatement
section 51(4) are satisfied, in order to assess whether Pederson
owed a duty to Barnes, all that remains to be determined is
whether Pederson knew that he needed to take action to rectify
Aikens wrongdoing. The Restatement defines know as having actual
knowledge or, alternatively, reason to know, which is further
defined as having information from which a person of reasonable
intelligence or of the superior intelligence of the actor would
infer that the fact in question exists.11 The Restatement takes
care to distinguish reason to know from should know.12 Should
know denote[s] the fact that a person of reasonable prudence and
intelligence or of the superior intelligence of the actor would
ascertain the fact in question in the performance of his duty to
another, or would govern his conduct upon the assumption that
such fact exists.13 Reason to know is a less onerous standard
than should know, because reason to know only involves drawing
inferences from known facts, whereas should know entails a duty
to inquire and determine new facts.14
Pederson reiterates several times in his briefs that he
had no actual knowledge of Aikens wrongdoing. At no point does
he address whether he had reason to know of Aikens conduct.
Instead, Pederson analogizes his situation to that of the lawyer
in Illustration 6 to Restatement (Third) of the Law Governing
Lawyers section 51. In Illustration 6, a lawyer represents a
client in the clients capacity as a trustee. The client tells
the lawyer that he is going to transfer trust funds into a trust
account, but what the client is actually planning to do is
embezzle the funds by transferring them into his own account.
According to the illustration:
[e]ven though [L]awyer could have exercised
diligence and thereby discovered [Clients
description of his plan] to be false, Lawyer
does not do so. Lawyer is not liable to the
harmed Beneficiary. Lawyer did not owe
Beneficiary a duty to use care because Lawyer
did not know (although further investigation
would have revealed) that appropriate action
was necessary to prevent a breach of
fiduciary duty by Client.
The facts of this case differ from the facts in
Illustration 6, however. The only information known by the
lawyer in the illustration is that the client planned to transfer
trust funds into a trust account. There is nothing at all
suspicious about such a course of action, so the lawyer in the
illustration has no information from which to draw an inference
that the client is planning to embezzle funds. In this case, by
contrast, several warning signs of Aikens misconduct existed.
Pederson knew about Barness therapists allegations that Aiken was
living beyond his means. Moreover, Pederson had obtained from
Aiken three financial statements purportedly issued by Heid
Investment Company. When opposing Pedersons motion for summary
judgment, Barnes submitted a summary of Attorney Bruce Gagnons
testimony. In the summary, Gagnon opined that a number of
characteristics of the Heid Investment Company reports gave
Pederson reason to know that something was amiss with Aikens
handling of guardianship funds. According to Gagnon, not only do
the reports purport to come from an obscure financial institution
and suspiciously provide no details about how Barness assets were
being invested, but they also indicate impossibly high rates of
return on the investments. Moreover, Aiken, in his initial
accounting to Pederson, failed to account for $40,274.18, which,
when reported, almost doubled the amount of guardianship funds.
Given this evidence about the suspicious appearance of
the account statements, the incredibly high levels of return on
the investments, and the fact that for a time Aiken apparently
forgot about half of the guardianship funds, we hold that a
genuine issue of material fact existed about whether Pederson had
enough information from which to infer, and thus had reason to
know, that Aiken was defrauding his niece. When assessing
Pedersons argument at the summary judgment stage that he could
not have breached a duty to Barnes, the superior court should
have asked whether Pederson had reason to know, not whether he
should have known, of Aikens misconduct. Although the superior
court applied an erroneous standard, the superior court
nevertheless reached the correct result. We therefore uphold the
denial of Pedersons motion for summary judgment.15
B. Pedersons Liability for the Compensatory Damage Award.
The jury in this case found Aiken sixty percent at
fault and Pederson forty percent at fault for the portion of
Barness loss ($8,473.61) that occurred after Pederson breached
his duty to her. The court, when entering final judgment against
Pederson, ordered Pederson to pay the entire $8,473.61 amount.
Pederson argues that the superior court erred when it held him
jointly and severally liable with Aiken rather than apportioning
the damages between them according to their percentage of fault.
Analysis of Pedersons liability for compensatory
damages requires interpretation of AS 09.17.080 and 09.17.900.
Because statutory interpretation poses a question of law, this
court uses its independent judgment16 and adopts the rule of law
that is most persuasive in light of precedent, reason, and
policy.17 When interpreting a statute, the court looks to three
factors: the language of the statute, the legislative history,
and the legislative purpose behind the statute.18
When the jurors in this case allocated fault between
Aiken and Pederson, they acted in conformity with AS
09.17.080(a)(2), which requires the trier of fact to indicate the
percentage of total fault that is allocated to each defendant (as
well as to others defined in subsection .080(a). Subsection
.080(d) requires the superior court to enter judgment against
each party liable on the basis of several liability in accordance
with that partys percentage of fault.19
In 1997 the legislature amended the definition of fault
found in AS 09.17.900 to include intentional conduct.20 With this
amendment, the legislature made it clear that it intended AS
09.17.080s several liability regime to extend to cases involving
intentional conduct.21
While the amended AS 09.17.900 and .080, when read
together, clearly extend pure several liability to intentional
torts, the statutes make no explicit mention of which type of
liability applies in duty-to-protect cases. This court held in
Kodiak Island Borough v. Roe that prior to 1997, torts stemming
from a breach of the duty to protect were subject to joint and
several liability, as described in the Restatement (Third) of
Torts: Apportionment of Liability section 14.22 While we declined
to decide the issue in Kodiak, we suggested that the 1997
amendment might have displaced the common law and that section
.900 may now permit an apportionment that is contrary to
Restatement (Third) of Torts: Apportionment of Liability section
14.23
Superior Court Judge John Reese grappled with the issue
of liability in a duty-to-protect case, Doe v. State of Alaska,
Department of Corrections.24 In an order resolving motions for
summary judgment and rule of law, Judge Reese decided that
because the legislature did not expressly consider tortfeasors in
duty to protect cases, and because including intentional acts in
duty to protect cases undermines established policy in Alaska
case law, AS 09.17.080 and .900 were ambiguous when applied to
duty-to-protect cases.25 Judge Reese concluded that because the
duty of care . . . would effectively be nullified if the party
entrusted with the duty to protect was permitted to allocate, and
effectively shift, the fault to the subsequent intentional
tortfeasor,26 if Doe proved that the state had violated its duty
of care, then the state and the intentional tortfeasor would be
jointly and severally liable.27 The superior court in this case
relied upon Judge Reeses decision in Doe when it declined to
allocate fault between Aiken and Pederson.
Pederson argues that the superior court should not have
relied upon Judge Reeses decision because he, unlike the state in
the Doe case, had no duty to protect. We have already concluded
that so long as he had reason to know of Aikens crime or fraud,28
Pederson did have a duty to take appropriate action to prevent or
rectify it,29 a duty the jury found Pederson to have breached. We
therefore conclude that Pederson is liable to Barnes based on a
failure to protect [her] from the specific risk of an intentional
tort,30 satisfying the Restatements description of a duty to
protect.
Pederson argues in the alternative that the pure
several liability regime created by AS 09.17.080 and .900 extends
to duty-to-protect cases. We agree with Pederson that as a
result of the 1997 amendment to AS 09.17.900, duty-to-protect
cases are now subject to the pure several liability regime of AS
09.17.080. While Judge Reese was correct that AS 09.17.900 does
not specifically address duty-to-protect cases, the legislative
history indicates that the legislature considered and intended to
include duty-to-protect cases in its amendment of AS 09.17.900.
When the Governors Advisory Task Force on Civil Justice Reform
proposed amending AS 09.17.900, it chose to illustrate the effect
of the new language with an example of a duty-to-protect case:
[P]laintiffs sometimes sue the State for
negligent supervision of a probationer who
intentionally shoots the plaintiff. The
plaintiff may fail to name the probationer as
a defendant and attempt to allocate all fault
to the State. This amendment clarifies the
States right to name the probationer as a
third-party defendant and to have fault
allocated against him or her for his or her
intentional acts. This avoids the
incongruous result of allocating fault to
those who are negligent, but not to those who
act intentionally.[31]
When the task forces proposed amendment was presented to the
legislature, the house majority leaders sectional summary stated
that the amendment was taken verbatim from the Report of the
Governors Task Force.32
Given the facts that the plain language of AS 09.17.900
makes no exception for the duty to protect, that the Governors
Advisory Task Force on Civil Justice Reform indicated that it
intended the amended statute to reach duty-to-protect cases, and
that the legislature incorporated by reference the task forces
duty-to-protect example, we conclude that pure several liability
applies in duty-to-protect cases. As a result, the superior
court erred when it failed to apportion damages between Pederson
and Aiken.
A determination that Pederson can only be held
severally liable does not end our inquiry into the exact amount
of Pedersons liability, however. Pederson argues that because
Aiken as part of his criminal conviction was ordered to pay
Barnes restitution and because the superior court in the civil
case issued a directed verdict against Aiken for the full amount
of Barness loss, entering judgment against Pederson for any
amount of Barness loss has the effect of holding him
impermissibly jointly and severally liable with Aiken.
We need not resolve in this case whether the $82,000
judgment against Aiken for the full amount of Barness loss, which
includes the $8,473.61 that was due in part to Pedersons breach
of duty, could result in an offset that would be to Pedersons
benefit.33 For resolution of this issue to be required, Aiken
would need to have paid a sum which, taken together with
Pedersons liability, would result in Barnes receiving a partial
double recovery.34 Since Aiken had only paid $2,640 of the
judgment against him as of July 2004, the most recent figure
available in the record, it appears that this triggering event
has not taken place.
Pederson also might be arguing that the superior court,
when it granted the directed verdict for the full loss against
Aiken, impliedly held that Pederson was innocent of wrongdoing.
Since the superior court (1) believed that joint rather than
several liability applied to the case; (2) submitted the issue of
Pedersons fault to the jury; and (3) entered judgment against
Pederson, the superior court clearly did not intend for its
judgment against Aiken to indicate that Pederson had done no
wrong.
Because we conclude that Pederson is severally liable
for the forty percent of fault allocated to him by the jury, we
vacate the superior courts entry of judgment against Pederson and
remand so that the court can enter judgment in the amount of
forty percent of the loss Barnes incurred after Pederson breached
his duty to her.
C. Pedersons Motion for a Directed Verdict on the Issue of
Punitive Damages.
At the close of Barness case, Pederson moved for a
directed verdict on the issue of punitive damages. The superior
court denied the motion in part and permitted the jury to
determine whether Pederson was liable for punitive damages after
November 12, 1998.35 The jury subsequently awarded Barnes $37,500
in punitive damages against Pederson, an amount which the court
included in its final judgment. Pederson argues that because
there was no clear and convincing evidence that his conduct was
reckless rather than negligent, the court should have granted his
motion for a directed verdict instead of presenting the issue of
punitive damages to the jury .36
We review the decision to submit a punitive damages
determination to the jury for abuse of discretion.37 More
generally, when reviewing a superior courts decision to deny a
motion for a directed verdict, we will determine whether the
evidence, when viewed in the light most favorable to the
non-moving party, is such that reasonable [persons] could not
differ in their judgment. 38
In order for a jury to make an award of punitive
damages, AS 09.17.020(b) requires there to be clear and
convincing evidence of either outrageousness, which includes acts
done with malice or bad motives,39 or reckless indifference to the
interest of another person.40 At trial, Barnes stipulated that
Pederson did not have malice, and the superior court concluded
that there was no evidence that Pederson had any ill or hostile
or bad motives. We therefore need to determine whether Pederson
was recklessly indifferent to Barness interests.
A review of the record leads us to conclude that there
is no evidence that Pederson acted with reckless indifference to
Barness rights. Viewing the evidence in the light most favorable
to Barnes, there is no indication that Pederson had actual
knowledge of Aikens wrongdoing. Nor is there evidence that
Pederson attempted to avoid knowledge of Aikens misconduct.
Instead, when Pederson first received the therapists accusations,
he conducted a partial investigation by discussing the
accusations with both Aiken and Parks. He even tried to contact
the therapist. Pederson did fail to appreciate the significance
of certain warning signs of Aikens misconduct, such as the high
rates of return from the purported investments. Yet even Barness
expert witness who testified that Pederson had committed
malpractice never characterized Pedersons behavior as reckless.
When Pederson did eventually learn of Aikens misconduct, he
promptly reported it to the court.
Barnes argues that Pederson was reckless when he failed
to acquire and inspect a copy of the accounting that Aiken
submitted to the court on March 31, 1998. Barnes further argues
that Pederson was recklessly indifferent to her interests when
he, in his report to the court, indicated that no SBS funds had
been paid, even though at the time he wrote the report he had a
document in his file indicating that the funds had been paid.
Pederson testified that despite the document in his file, he did
not believe that Barnes had received the SBS funds. Aiken had
explained to Pederson that the SBS check had not cleared and that
he had chosen instead to defer the payment. According to the
Restatement (Second) of Torts, [p]unitive damages are not awarded
for mere inadvertence, mistake, errors of judgment and the like,
which constitute ordinary negligence [but are restricted to]
conduct involving some element of outrage similar to that usually
found in crime.41 While in retrospect it appears foolish for
Pederson to have believed Aiken and to have allowed Aiken to
submit any documents to the court on his own, we cannot conclude
that Pedersons actions contained the element of outrageousness or
recklessness necessary to justify an award of punitive damages.
Given the absence of evidence that Pederson acted with
reckless indifference to Barness interests, we conclude that the
denial of Pedersons motion for a directed verdict on the issue of
punitive damages was an abuse of discretion.
D. The Date on Which Prejudgment Interest Should Have
Begun To Accrue.
Alaska Statute 09.30.070(b) provides that, barring
exceptions not applicable in this case,
prejudgment interest accrues from the day
process is served on the defendant or the day
the defendant received written notification
that an injury has occurred and that a claim
may be brought against the defendant for that
injury, whichever is earlier. The written
notification must be of a nature that would
lead a prudent person to believe that a claim
will be made against the person receiving the
notification, for personal injury, death, or
damage to property.
Pederson argues that rather than calculating
prejudgment interest from October 27, 1999, the date that
Pederson became aware of Aikens wrongdoing and informed the
court, the court should instead have deemed interest to accrue
from August 16, 2001, the date that Barness attorney wrote a
demand letter to Pederson. According to Pederson, the August 16,
2001 letter was the first written notice he received that Barnes
would pursue a claim against him.
The determination of when prejudgment interest begins
to accrue presents a legal question that we review de novo.42
Alaska Statute 09.30.070(b) makes it clear that
prejudgment interest begins to accrue on the date that the
defendant learns that the plaintiff has a claim against him,
rather than on the date the defendant learns that the plaintiff
has suffered a loss. While Pederson learned on October 27, 1999,
that Aiken had committed wrongdoing leading to Barness loss, it
was not until August 16, 2001, when Pederson received Barness
demand letter, that he learned that she would be pursuing a claim
against him. We therefore reverse the superior courts choice of
date for the accrual of prejudgment interest and remand for a
calculation of prejudgment interest accruing from August 16,
2001.
IV. CONCLUSION
For the above reasons we AFFIRM the superior courts
denial of Pedersons motion for summary judgment. However, we
VACATE the superior courts award of compensatory damages, REVERSE
the superior courts denial of Pedersons motion for a directed
verdict on the issue of punitive damages, and REVERSE the
superior courts choice of date for the accrual of prejudgment
interest. We REMAND the case so that the superior court can
recalculate Pedersons share of compensatory damages and the
amount he owes in prejudgment interest.
_______________________________
1 In December 2003 Barnes was substituted as the
plaintiff for Parks. All references in this opinion to the
plaintiff will use Barness name. Additionally, all references to
the defendant or appellant will employ Pedersons name, even
though Nangle was also sued and held jointly liable.
2 558 P.2d 988 (Ariz. App. 1976).
3 1055 (Alaska 2005). Barnes, like the appellee in On
drusek, id. at 1056 n.2, does not argue that the fact that the cas
e was ultimately decided on the merits should prevent this cour
4 Ondrusek v. Murphy, 120 P.3d 1053, 1055 (Alaska 2005).
Barnes, like the appellee in Ondrusek, id. at 1056 n.2, does not
argue that the fact that the case was ultimately decided on the
merits should prevent this court from considering the denial of
the motion for summary judgment. Since the point was not raised,
we will postpone consideration of this issue until a later case.
Id.
5 Id. at 1055.
6 Id. at 1055-56 (citations and quotation marks omitted).
7 Restatement (Third) of the Law Governing Lawyers 51
(2000).
8 Id. at 51(4).
9 Id. at 51 cmt. h (explaining that a nonclient
beneficiary is unable to protect her rights when she is too young
to manage her own affairs).
10 See Alaska Rule of Professional Conduct 1.6(b)(1),
which permits lawyers to disclose confidential client information
when the lawyer believes that the disclosure is reasonably
necessary to prevent a crime by client that is likely to result
in substantial injury to the property of another; see also the
comment to Alaska Rule of Professional Conduct 1.14 (stating that
if a guardians lawyer is aware that the guardian is acting
adversely to the wards interest, the lawyer may have an
obligation to prevent or rectify the guardians misconduct.).
11 Restatement (Third) of the Law Governing Lawyers 51
cmt. h (internal quotations omitted).
12 Id.
13 Restatement (Second) of Torts 12 (1965).
14 Restatement (Third) of the Law Governing Lawyers 51
cmt. h.
15 Pederson also complains about the courts instruction to
the jury explaining the duty of care to a non-client but for some
unexplained reason makes explicit his decision not to appeal this
issue. As a result, we will not address the courts inclusion of
a duty to investigate into the know or reason to know standard
used in the jury instruction.
16 Odum v. Univ. of Alaska, Anchorage, 845 P.2d 432, 434
(Alaska 1993).
17 Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).
18 Western Star Trucks, Inc. v. Big Iron Equip. Serv.,
Inc., 101 P.3d 1047, 1050 (Alaska 2004).
19 AS 09.17.080 reads in full:
(a) In all actions involving fault of
more than one person, including third-party
defendants and persons who have settled or
otherwise been released, the court, unless
otherwise agreed by all parties, shall
instruct the jury to answer special
interrogatories or, if there is no jury,
shall make findings, indicating
(1) the amount of damages each claimant
would be entitled to recover if contributory
fault is disregarded; and
(2) the percentage of the total fault
that is allocated to each claimant,
defendant, third-party defendant, person who
has been released from liability, or other
person responsible for the damages unless the
person was identified as a potentially
responsible person, the person is not a
person protected from a civil action under AS
09.10.055, and the parties had a sufficient
opportunity to join that person in the action
but chose not to; in this paragraph,
sufficient opportunity to join means the
person is
(A) within the
jurisdiction of the
court;
(B) not precluded from
being joined by law or
court rule; and
(C) reasonably locatable.
(b) In determining the percentages of
fault, the trier of fact shall consider both
the nature of the conduct of each person at
fault, and the extent of the causal relation
between the conduct and the damages claimed.
(c) The court shall determine the award
of damages to each claimant in accordance
with the findings and enter judgment against
each party liable. The court also shall
determine and state in the judgment each
partys equitable share of the obligation to
each claimant in accordance with the
respective percentages of fault as determined
under (a) of this section. Except as
provided under AS 23.30.015(g), an assessment
of a percentage of fault against a person who
is not a party may only be used as a measure
for accurately determining the percentages of
fault of a named party. Assessment of a
percentage of fault against a person who is
not a party does not subject that person to
civil liability in that action and may not be
used as evidence of civil liability in
another action.
(d) The court shall enter judgment
against each party liable on the basis of
several liability in accordance with that
partys percentage of fault.
20 After the amendment, AS 09.17.900 now reads in
pertinent part: In this chapter, fault includes acts or omissions
that are in any measure negligent, reckless, or intentional
toward the person or property of the actor or others, or that
subject a person to strict tort liability.
21 Kodiak Island Borough v. Roe, 63 P.3d 1009, 1014
(Alaska 2003).
22 Id. Restatement (Third) of Torts: Apportionment of
Liability 14 (2000) states:
A person who is liable to another based on a
failure to protect the other from the
specific risk of an intentional tort is
jointly and severally liable for the share of
comparative responsibility assigned to the
intentional tortfeasor in addition to the
share of comparative responsibility assigned
to the person.
23 63 P.3d at 1015.
24 No. 3AN-01-10389 CI (Alaska Super., Mar. 16, 2004).
25 Id. at 9.
26 Id.
27 Id. at 11.
28 Restatement (Third) of the Law Governing Lawyers
51(4)(b)(i).
29 See supra pages 9-12.
30 Restatement (Third) of Torts: Apportionment of
Liability 14.
31 Report of the Governors Advisory Task Force on Civil
Justice Reform 51 (1996).
32 House Majority Leader Brian S. Porter, Sectional
Summary of Senate CS for CS for SS for HM 58 (RLS) am S: An Act
Relating to Civil Actions 14 (Apr. 20, 1997).
33 The issue of the availability of an offset is pending
before this court in Diggins v. Jackson, Supreme Court No. S-
11141, and as to an earlier tort reform regime, in Petrolane v.
Robles, Supreme Court No. S-11042.
34 See Luth v. Rogers & Babler Constr. Co., 507 P.2d 761,
766-67 (Alaska 1973) (reaching the issue of offset in a pre-tort
reform context, but only after the plaintiffs had received a
$3,500 payment from people they could have joined as defendants.
Because the $3,500 payment amounted to half of the jury-returned
damage verdict, the plaintiffs would have received a partial
double recovery had the offset not been permitted).
35 While the superior court initially authorized the jury
to decide Barness claim for punitive damages resulting from
Pedersons conduct after November 12, 1998, the special verdict
form asked the jury to determine whether Pedersons conduct after
November 16, 1998, was outrageous.
36 Pederson also argues that his motion for a directed
verdict should have been granted because (1) Aikens criminal
conduct served as a superseding cause of Barness damages, and (2)
Barnes failed to present any expert testimony that Pedersons
conduct was reckless rather than merely negligent. Because we
conclude that there is no clear and convincing evidence that
Pedersons conduct was reckless, we decline to address these
additional arguments.
37 Wal-Mart, Inc. v. Stewart, 990 P.2d 626, 637 (Alaska
1999).
38 Id. at 632 (quoting City of Whittier v. Whittier Fuel &
Marine Corp., 577 P.2d 216, 220 (Alaska 1978) (alteration in
original)).
39 AS 09.17.020(b)(1).
40 AS 09.17.020(b)(2).
41 State v. Hazelwood, 946 P.2d 875, 889 (Alaska 1997)
(Compton, C.J., dissenting) (quoting Restatement (Second) of
Torts 908 cmt. b) (alteration in original).
42 Lloyds & Inst. of London Underwriting Cos. v. Fulton, 2
P.3d 1199, 1210 (Alaska 2000).
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