Title: Kath v. Western Media, Inc.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Kath v. Western Media, Inc.1984 WY 71684 P.2d 98Case Number: 83-224Decided: 07/19/1984KERM KATH, GERALD W. ROUNSBORG AND DONALD JONES, APPELLANTS (DEFENDANTS), 

v. 

WESTERN MEDIA, INC., TONY A. KEHL AND LEONARD KEHL, APPELLEES (PLAINTIFFS).
Supreme Court of Wyoming
KERM 
KATH, GERALD W. ROUNSBORG AND DONALD JONES, APPELLANTS (DEFENDANTS),

v. 

WESTERN MEDIA, INC., TONY 
A. KEHL AND LEONARD KEHL, APPELLEES (PLAINTIFFS).

 
 
Appeal from the District Court,GoshenCounty, Alan B. Johnson, 
J.

 
 
Stanley K. 
Hathaway and Rick A. Thompson of Hathaway, Speight & Kunz, Cheyenne, for appellants.

John R. Hursh 
and William L. Miller of Central Wyoming Law Associates, P.C., Riverton, for appellees.

Before ROONEY, C.J., and 
THOMAS, ROSE, BROWN and CARDINE, JJ.

BROWN, 
Justice.

[¶1.]     Appellants Kath, 
Rounsborg and Jones appeal from the trial court's order confirming a settlement 
of a lawsuit negotiated by the parties. Appellees' Wyoming attorney had in his possession a letter written by 
appellees' Montana attorney which contradicted 
testimony given by the Montana attorney at his deposition. The single 
issue is whether there was a duty to apprise appellants of this letter before a 
settlement was reached.

[¶2.]     We will reverse and 
remand for trial.

[¶3.]     Kerm G. Kath, Gerald A. 
Rounsborg, Donald E. Jones, Tony Kehl and Leonard Kehl were associated together 
for the purpose of acquiring and operating radio stations in Wyoming, Nebraska and 
Montana.1 This group was closely associated 
first as partners in acquiring stations and forming corporations and later as 
shareholders in the corporations. The five members of the group, along with 
Western Media, Inc., were sued in Montana, both as shareholders in the 
corporation and individually. In the Montana litigation Mr. J. Robert Planalp 
represented Western Media, Inc., and the five shareholders for all purposes. The 
case was decided adversely to the five individuals and Western Media, Inc. The 
defendants in the Montana lawsuit are either appellants or 
appellees in this action. Appellees brought this action in Wyoming against appellants to recover damages, court costs 
and attorney fees incurred in the Montana litigation.

[¶4.]     After commencement of 
this action the parties had several settlement discussions. Appellants offered 
to settle the Wyoming lawsuit for $12,000, 
which sum represented about three-fifths of the attorney fees in the Montana suit. Appellees 
made counter offers but they were not acceptable to appellants. Appellants had 
some concern whether or not Planalp had represented all the defendants in the 
Montana 
litigation equally, that is, whether or not he had favored Western Media, Inc., 
and the Kehl brothers to the disadvantage of Kath, Rounsborg and 
Jones.

[¶5.]     At a pretrial 
conference Planalp was listed by appellees as a witness. Appellants requested 
that the deposition of Planalp be taken and that he produce his Montana litigation file 
for examination. The deposition was taken April 6, 1983, and it was stipulated 
that the deposition be used as evidence at trial. Planalp produced his file for 
the first time at the deposition. Planalp testified in his deposition that he 
represented both appellants and appellees in the Montana lawsuit. He further testified that he 
represented all appellants and appellees, up to and including the time a 
decision was made to dismiss the appeal before the Montana Supreme Court. 
Planalp testified that at the time the appeal was dismissed in October, 1980, he 
believed the matter was settled; he did not learn that the Kehl brothers 
intended to collect the attorney fees, damages and court costs from Kath, Jones 
and Rounsborg until late 1981, which was after the Montana judgment was 
paid. Planalp's entire deposition testimony was to the effect that he had not 
represented some of his clients to the disadvantage of 
others.

[¶6.]     Stipulation for 
satisfaction of judgment was signed by Planalp in October, 1980. The Montana judgment against 
Kath, Rounsborg and Jones was assigned to Western Media, Inc., in December, 
1980. Planalp was involved in this assignment, but did not tell appellants about 
it. Before this time the Kehl brothers had acquired all the stock in Western 
Media, Inc. Mr. Planalp stated in his deposition that had he known Western 
Media, Inc., and the Kehl brothers were going to sue appellants he would have 
had a duty to tell them about the assignment.

[¶7.]     The day after Planalp's 
deposition, April 6, 1983, appellees' Wyoming attorney became concerned about an 
ethical problem and wrote Planalp the following letter:

"Upon our return to 
Riverton last night, I located the enclosed letter of yours dated June 23, 1980, 
which was addressed to Leonard Kehl. I think it is imperative that I have your 
comments concerning the contents of this letter as it relates to the position 
taken in your deposition yesterday. The inconsistency between your testimony and 
the content of this letter is most apparent and, quite frankly, I need to know 
your thoughts about this problem.

"I don't think Attorney 
Hathaway has a copy of this letter, but we know it exists. I would appreciate 
your thoughts on the ethical problems posed by the position you took in your 
deposition."

[¶8.]     The letter referred to 
was addressed to Leonard Kehl, and shows a copy to Tony 
Kehl:

"You [Leonard Kehl] have 
asked me to review the potential liability of Defendants, Jones, Rounsborg and 
Kath. You have indicated to me that any potential liability would not want to be 
brought into Court except as a very last resort. I know Tony concurs with this 
position, but I think it is wise that you review your status concerning the 
liability of these shareholders.

"I will also, at the time 
the actual judgment is rendered, review the judgment to make sure that if at all 
possible, the judgment is not stating that you and Tony are in default but that 
the other three individuals are in default. This is important because the 
proposed judgment then would state that you have done nothing wrong, but that 
the other three individuals did something wrong. "This concept of liability 
would then be important if and when you proceed against these 
Defendants."

[¶9.]     On April 11, 1983, 
Planalp and appellees' Wyoming attorney talked about the June 23, 
1980, letter. Planalp said he wanted to review his file and his deposition.2 On the same day, appellees' 
Wyoming 
attorney called appellants' attorney and asked if the $12,000 was still 
available to settle the lawsuit. After several telephone conversations among the 
attorneys for the parties the case was orally settled, appellants agreeing to 
pay $12,000. At the time of the oral agreement to settle, neither appellants nor 
their attorney knew of Planalp's letter. A copy of such letter was not in 
Planalp's file at the time of the deposition when the file was examined by 
appellants. Appellants maintain that they settled the case based upon Planalp's 
deposition regarding his equal representation of the parties in the Montana 
litigation.

[¶10.]  On April 11, 1983, Planalp sent 
appellants' attorney a copy of the June 23, 1980, letter. Upon receipt of the 
letter some days later, appellants' attorney revoked the offer of settlement. 
The revocation was based on "misleading and false statements made by Planalp in 
his deposition, and plaintiffs' (appellees) failure to disclose the contents of 
the June 23, 1980, letter to Defendants (appellants)."

[¶11.]  After appellants revoked the settlement, 
appellees made a motion for an order confirming settlement; the trial court 
upheld the settlement and granted judgment in the sum of $12,000 in favor of 
appellees. This appeal is from the trial court's judgment.

[¶12.]  The sole issue in this case is whether 
appellees' attorney had an ethical duty to advise the court and appellants' 
attorney of the June 23, 1980, letter from Planalp to Leonard Kehl. We hold that 
he had such a duty.

[¶13.]  The court in Virzi v. Grand Trunk Warehouse and Cold 
Storage Co., 571 F. Supp. 507 (E.D.Mich. 1983) dealt with a nondisclosure 
problem involving legal principles similar to the principles involved here. 
Virzi was a personal injury action submitted to a mediation panel. After 
plaintiff's attorney filed a mediation statement but before the mediation panel 
acted, plaintiff died unexpectedly from causes unrelated to the lawsuit. The 
mediation panel placed a value on plaintiff's claim. Several days later 
plaintiff's attorney learned of his client's death. A personal representative 
was appointed by the probate court to administer plaintiff's estate but no 
suggestion of death was made to the federal court where the personal injury 
action was pending, nor was the personal representative substituted as 
plaintiff.

[¶14.]  A month after plaintiff's death, counsel 
for the parties in the personal injury action appeared before the trial court at 
a pretrial conference, and after negotiations entered into a settlement of the 
lawsuit for the amount of the mediation award. At no time, from the time 
plaintiff's attorney learned of plaintiff's death until the agreement to settle 
the case, did plaintiff's attorney notify defendant's attorney or the court of 
the death of plaintiff. After the settlement was agreed upon in court chambers 
and made a matter of record, plaintiff's attorney, for the first time, informed 
defendant's attorney that plaintiff had died.

[¶15.]  After being informed that plaintiff was 
dead, defendant sought to have the settlement declared void contending that the 
sole reason for agreeing to the settlement amount was that plaintiff would have 
made an excellent witness in his own behalf if the case had gone to trial. The 
court set aside the settlement and reinstated the case for 
trial.

[¶16.]  The court in Virzi stated at p. 
512:

"* * * [C]andor and 
honesty necessarily require disclosure of such a significant fact as the death 
of one's client. Opposing counsel does not have to deal with his adversary as he 
would deal in the marketplace. Standards of ethics require greater honesty, 
greater candor, and greater disclosure, even though it might not be in the 
interest of the client or his estate.

"The handling of a 
lawsuit and its progress is not a game. There is an absolute duty of candor and 
fairness on the part of counsel to both the Court and opposing counsel. At the 
same time, counsel has a duty to zealously represent his client's interests. 
That zealous representation of interest, however, does not justify a withholding 
of essential information, such as the death of the client, when the settlement 
of the case is based largely upon the defense attorney's assessment of the 
impact the plaintiff would make upon a jury, because of his appearance at 
depositions. Plaintiff's attorney clearly had a duty to disclose the death of 
his client both to the Court and to opposing counsel prior to negotiating the 
final agreement."

[¶17.]  Disciplinary Rule 7-102A of the American 
Bar Association Model Code of Professional Responsibility provides:3

"(A) In his 
representation of a client, a lawyer shall not:

* * * * * 
*

"(3) Conceal or knowingly 
fail to disclose that which he is required by law to 
reveal."

[¶18.]  Ethical Consideration 7-27 
provides:

"Because it interferes 
with the proper administration of justice, a lawyer should not suppress evidence 
that he or his client has a legal obligation to reveal or produce. * * 
*"

[¶19.]  Rule 3.3 of the Model Rules of 
Professional Conduct, adopted by the American Bar Association August 2, 1983, 
provides in pertinent part:4

"(a) A lawyer shall not 
knowingly:

* * * * * 
*

"(2) fail to disclose a 
material fact to a tribunal when disclosure is necessary to avoid assisting a 
criminal or fraudulent act by the client."

In commenting 
upon Rule 3.3, the drafters state:

"* * * There are 
circumstances where failure to make a disclosure is the equivalent of an 
affirmative misrepresentation. * * *"

[¶20.]  Judge Rubin in his article entitled, "A 
Causerie on Lawyer's Ethics in Negotiations," 35 La.L.Rev. 577, 589-590 (1975), 
says:

"If he is a professional 
and not merely a hired * * * hand, the lawyer is not free to do anything his 
client might do in the same circumstances. The corollary of that proposition 
does set a minimum standard: the lawyer must be at least as candid and honest as 
his client would be required to be. The agent of the client, that is, his 
attorney-at-law, must not perpetrate the kind of fraud or deception that would 
vitiate a bargain if practiced by his principal. Beyond that, the profession 
should embrace an affirmative ethical standard for attorneys' professional 
relationships with courts, other lawyers and the public: The lawyer must act 
honestly and in good faith. Another lawyer * * * who deals with a lawyer should 
not need to exercise the same degree of caution that he would if trading for 
reputedly antique copper jugs in an oriental bazaar. It is inherent in the 
concept of an ethic, as a principle of good conduct, that it is morally binding 
on the conscience of the professional, and not merely a rule of the game adopted 
because other players observe (or fail to adopt) the same rule. Good conduct 
exacts more than mere convenience. * * *

"* * * Candor is not 
inconsistent with striking a deal on terms favorable to the client, for it is 
known to all that, at least within limits, that is the purpose to be served. * * 
* The distinction between honesty and good faith need not be finely drawn here; 
all lawyers know that good faith requires conduct beyond simple 
honesty."

[¶21.]  Planalp's letter to Leonard Kehl dated 
June 23, 1980, clearly indicates that he had taken sides between the appellees 
and appellants and that his representation was in the Kehl Brothers' interest 
and was against the interests of Kath, Rounsborg and Jones. The letter also 
indicates that a lawsuit by appellees against appellants was being considered as 
early as June 23, 1980. The letter was contrary to what Planalp said or 
necessarily implied in his April 6, 1983, deposition.

[¶22.]  We hold that appellees' counsel owed a 
duty of candor and fairness to disclose to opposing counsel and the court 
Planalp's letter of June 23, 1980. The order confirming settlement is vacated 
and case reinstated for further proceedings.

[¶23.]  Reversed and 
remanded.

1 Apparently Leonard Kehl 
joined the group later than the others, and was only involved with the 
Montana radio 
station. Kerm G. Kath died after the commencement of this action, and his estate 
was substituted as a party defendant.

2 After the June 23, 1980, 
letter was brought to the attention of Planalp, he modified his deposition 
before signing it. We believe this modification to be 
immaterial.

3 The Wyoming Supreme 
Court has adopted the American Bar Association Model Code of Professional 
Responsibility relating to the practice of law in Wyoming, with exceptions 
not applicable here. Rule 20, Bar Association Organization and 
Government.

4 The Model Rules of 
Professional Conduct have not been adopted by the Supreme Court of Wyoming. 
However, they reflect the most recent thinking on the subject of legal ethics by 
the American Bar Association.