Opinion ID: 1163264
Heading Depth: 1
Heading Rank: 9

Heading: independent business judgment defense

Text: Respondent Block argues that Petitioner Stiley's claim should have been dismissed under a line of cases which includes Marsh v. Commonwealth Land Title Ins. Co., [105] King v. City of Seattle [106] and Horn v. Moberg. [107] He asserts that because Petitioner decided not to pursue his available legal remedies, that is, foreclosing on his loan or suing Webbco as the primarily liable party, his damages were caused by his voluntary exercise of independent business judgment, and not by Respondent Block's conduct. The Court of Appeals reasoned that Petitioner's decision not to foreclose on his loan did not preclude a finding that Respondent Block was the proximate cause of Petitioner's loss. [108] Respondent Block claims the Court of Appeals decision conflicts with Marsh and the other cases cited. In Marsh, the Marshes sued a title company for negligence in recording a deed late. They claimed the title company's negligence put them in a vulnerable legal position, causing them to pay more in a subsequent claim than they otherwise would have been required to pay. But the court stated that [W]here there is a realistic possibility of correcting the wrongful act complained of by pursuing available legal remedies, and the plaintiff by the voluntary exercise of independent business judgment elects not to pursue those available legal remedies, the defendant's wrongful act is not the proximate cause of plaintiff's damages. [109] The court concluded that, although the title company's actions put the Marshes in a vulnerable legal position, that did not meet the requirement of proof of proximate cause between the alleged negligence and the claimed damages. [110] The voluntary exercise of independent business judgment defense was recognized earlier in the 1974 case of King v. Seattle, [111] which the Court cited at length in Marsh. In King, a couple (the Kings) applied for a building permit and a street use permit from the City of Seattle to construct a building over water. The city initially denied the permits, but the Kings obtained them in a mandamus action. Construction on the building was further hampered by a federal regulation requiring another permit which went into effect after the Kings initiated the mandamus action against the city. Instead of applying for that permit, the Kings abandoned their construction project. They quitclaimed their interest in the property back to the seller. They then sued the city for intentionally interfering with their business expectancy. In its opinion, this Court observed that proximate cause is not solely determined by cause in fact. The Court concluded the city was the cause in fact of their damages, but that was not a proximate cause of the Kings' damages. No legal causation was shown because the Kings did not exhaust their federal administrative remedies before suing the city. The later case of Horn v. Moberg [112] is more relevant here because it is a legal malpractice action in which an attorney raised the independent business judgment defense. In that case, the Horns sued their former attorney, Gerald J. Moberg, claiming he was negligent in preparing their products liability case. Mr. Moberg represented them in their case, but withdrew several months after the suit was filed, advising them to retain another attorney. After Mr. Moberg withdrew, the Horns chose to dismiss their claim against a defendant, the Maytag Company. They then sued Mr. Moberg for negligence in preparing their case. They claimed their decision to dismiss Maytag was not voluntary, but resulted from the stress created by Mr. Moberg's negligence. A jury found in favor of the Horns. The Court of Appeals reversed, stating that [t]he Horns' decision to dismiss the claim against Maytag was clearly an exercise of business judgment. [113] The Court relied principally upon King and Marsh for its decision. It reasoned that Mr. Moberg was, at most, a cause in fact of the Horns' loss; but found no element of legal causation to conclude he was a proximate cause of their damages. This case is distinguishable from Marsh, King, and Moberg. In this case, Petitioner Stiley lent Webbco $85,000.00. He testified he believed his loan was secured by a deed of trust giving him a first lien position on ninety-two lots and a deed of trust giving him a second lien position on seven lots. This belief was supported by a letter and deed of trust provided by Respondent Block. Petitioner decided not to foreclose when the Webbco loan became due on June 1, 1985. But the agreement between Petitioner Stiley and Webbco gave him the option not to foreclose on that date. The promissory note stated that if Petitioner Stiley did not foreclose on June 1, 1985, his loan would begin bearing annual interest at 15 percent. Respondent Block did not record the original deed of trust giving Petitioner Stiley a first lien position on ninety two lots in Westwood Hills. Petitioner Stiley would not have had an interest in the ninety-two lots if he had foreclosed at any time because the document actually recorded was the revised one giving him a security interest in only seven lots. Unlike the title company in Marsh, Respondent Block did not simply place Petitioner Stiley in a vulnerable legal position. Petitioner Stiley did not create legal liability in Respondent Block. That liability was created by Respondent Block himself. The Court of Appeals correctly concluded that Petitioner Stiley's decision not to foreclose does not preclude a finding that Respondent Block's act was a proximate cause of Petitioner Stiley's loss. The independent business judgment defense is not applicable under the facts of this case. This conclusion does not controvert the policy announced in King, Marsh and Moberg.