Opinion ID: 2602361
Heading Depth: 2
Heading Rank: 1

Heading: implied attorney-client relationship

Text: ¶ 37 MWT, Ltd., the limited partnership formed in 1986 during the effort to buy out the other applicants for the Channel 13 license, consisted of MWT Corporation, the MWT Company partners, and Northstar. It is undisputed that Wiley Rein represented MWT, Ltd., and Northstar from May 1988, following Northstar's conversion to general partner of MWT, Ltd., until December 1991, the date of Northstar's cash call; however, Wiley Rein denied representing any of the plaintiffs during this time period. ¶ 38 At trial below, plaintiffs asserted that Wiley Rein's work in representing MWT, Ltd., and Northstar directly involved the interests of the MWT, Ltd., limited partners. Because of this direct involvement, plaintiffs argued, Wiley Rein had implied attorney-client relationships with the MWT, Ltd., limited partners from May 1988 through December 1991. The trial court agreed and granted plaintiffs' motion for a partial directed verdict on the issue. Accordingly, the jury was instructed that, as a matter of law, Wiley Rein had an attorney-client relationship with the MWT, Ltd., limited partners from May 1988 to December 1991. On appeal, Wiley Rein contends the trial court's partial directed verdict ruling constituted reversible error.
¶ 39 A trial court is justified in granting a directed verdict only if, examining all evidence in a light most favorable to the non-moving party, there is no competent evidence that would support a verdict in the non-moving party's favor. Merino v. Albertsons, Inc., 1999 UT 14, ¶ 3, 975 P.2d 467. In reviewing a trial court's decision to grant a motion for a partial directed verdict, we apply the same standard `as that imposed upon a trial court.' Id. (quoting Mgmt. Comm. of Graystone Pines Homeowners Ass'n v. Graystone Pines, Inc., 652 P.2d 896, 898 (Utah 1982)). Accordingly, we can only affirm a trial court's grant of a motion for a partial directed verdict if `the moving party is entitled to judgment as a matter of law.' Id. (quoting Cornia v. Wilcox, 898 P.2d 1379, 1383 (Utah 1995)). ¶ 40 After reviewing the trial court's ruling under this standard, we conclude the trial court misinterpreted our case law and, thus, erroneously granted plaintiffs' motion for a partial directed verdict on this issue. The trial court concluded that defendants had an implied attorney-client relationship with the MWT, Ltd., limited partners, who are all plaintiffs in this action, based on defendants' direct involvement with those plaintiffs' legal interests. However, the proper determination of whether an implied attorney-client relationship exists hinges on whether the party had a reasonable belief that it was represented. That an attorney is directly involved in that party's legal interests is but one factor to consider in making this determination. ¶ 41 This issue is governed by our earlier opinion in Margulies v. Upchurch, 696 P.2d 1195 (Utah 1985). In that case we found improper a law firm's representation of several plaintiffs in a lawsuit against three doctors, where the law firm had an implied attorney-client relationship with those doctors stemming from a separate pending lawsuit. ¶ 42 In Margulies, the law firm Jones, Waldo, Holbrook & McDonough represented the Margulies family as plaintiffs in a medical malpractice action filed in the Third District Court. Id. at 1198. The defendants in that action included three doctors. These doctors were also limited partners in Diversified Energies/Intermountain Capital Private Drilling Fund 1981-A, a Utah limited partnership. Id. ¶ 43 At the same time the Margulies' medical malpractice action was pending, the Diversified Energies limited partnership was involved in unrelated litigation in federal court with Jones, Waldo serving as its counsel. Id. In order to become limited partners in Diversified Energy, the three doctors had been required, among other things, to purchase units in Diversified Energy by paying twenty percent of the value of the units in cash and financing the remaining eighty percent by obtaining individual, personal letters of credit. Id. Jones, Waldo's representation of Diversified Energies in the federal case was aimed at preventing foreclosure on the individual letters of credit. Id. ¶ 44 In light of these facts, the defendant doctors in the Margulies' medical malpractice case attested that . . . their impression and belief was that Jones, Waldo represented them individually in the Diversified Energies federal case. Id. at 1200. Accordingly, the three doctors moved to have Jones, Waldo disqualified as plaintiffs' counsel. Id. at 1199. The trial court concluded that Jones, Waldo must either withdraw from the Margulies' action or withdraw from the Diversified Energies' action and not use any information gained or available in connection with the federal court action. Id. (internal quotations omitted). Jones, Waldo elected to withdraw from its representation of Diversified Energies in the federal action. Id. ¶ 45 The defendants in the Margulies' medical malpractice case appealed the trial court's order allowing Jones, Waldo to continue as the plaintiffs' counsel in that action. Id. at 1198. We agreed and reversed the trial court and ordered that Jones, Waldo be disqualified from serving as the Margulies' counsel in their medical malpractice action. Id. at 1205. ¶ 46 Our conclusion was based, in large part, on our determination that Jones, Waldo not only represented Diversified Energies in the federal case, but, under the circumstances of that case, also had an implied attorney-client relationship with the three doctor defendants in the Margulies' action who were also limited partners in Diversified Energies. See id. at 1200-02. In reaching this conclusion, we reiterated the general rule that an attorney who represents a limited partnership represents only the entity itself, not the individual limited partners. See id. at 1200 (stating that representation of a limited partnership does not of itself require allegiance to the interests of the limited partners). ¶ 47 We also recognized in Margulies that there could be exceptions to this general rule, however, holding that an implied attorney-client relationship with the individual limited partners may arise under certain circumstances. Id. at 1200-01. Specifically, we concluded that such a situation may arise when the individual limited partners reasonably believe they are individually represented by the limited partnership's legal counsel. See id. at 1200. We went on to state that [w]hen . . . the individual interests of the limited partners are directly involved, . . . there may be sufficient grounds for implying the existence of an attorney-client relationship. Id. at 1201 (emphasis added). Under the circumstances of Margulies, we concluded that the three doctors' impression and belief, id. at 1200, that they were individually represented by Jones, Waldo was reasonable in light of the fact that Jones, Waldo's representation of Diversified Energies directly benefitted the three doctors. See id. at 1200-01. ¶ 48 The trial court here found an implied attorney-client relationship based solely on its conclusion that Wiley Rein was directly involved with the interests of the individual limited partners of MWT, Ltd. However, the court did not then go on to conclude that the individual limited partners reasonably believed Wiley Rein represented their individual interests from May 1988 through December 1991. Indeed, in evaluating the existence of an express attorney-client relationship, the court indicated that it had reached the opposite conclusion. Specifically, the court rejected as [un]warranted the plaintiffs' asserted belief that Wiley Rein continued to represent them after the departure of Barry Wood. In support of this conclusion, the court noted that Wood sent Joseph Lee several letters indicating he had left Wiley Rein to join plaintiff David Lee at Jones, Waldo's Washington, D.C. law office, and taken plaintiff's files with him. We conclude the trial court's ruling misinterpreted Margulies. ¶ 49 Margulies did not, as the trial court interpreted it, create two separate tests to determine whether an implied attorney-client relationship exists. Under the trial court's reading of Margulies, an attorney-client relationship may exist where either the limited partners reasonably believe the limited partnership's counsel represents them individually, or where the limited partnership's legal counsel does work that directly involves the limited partners' interests. However, Margulies adopted only one test to determine whether an implied attorney-client relationship exists, i.e., whether the individual limited partners reasonably believed that the limited partnership's legal counsel represented their interests. In resolving this question, a court looks at the totality of the circumstances, see, e.g., Rhode Island Depositors Economic Protection Corp. v. Hayes, 64 F.3d 22, 24-26 (1st Cir.1995), including whether the limited partnership's legal counsel was directly involved with the individual interests of the limited partners. [10] Thus, direct involvement is not a separate test, but only one factor to consider in determining whether the specific circumstances of the case demonstrate the individual limited partners' belief concerning representation is reasonable.
¶ 50 Having concluded the trial court erred in its interpretation of Margulies, we now address whether that error requires reversal. Even if a trial court erroneously grants a motion for partial directed verdict, we will not reverse a judgment merely because there may have been error; reversal occurs only if the error is such that there is a reasonable likelihood that, in its absence, there would have been a result more favorable to the complaining party. Child v. Gonda, 972 P.2d 425, 431 (Utah 1998). `A reasonable likelihood of a more favorable outcome exists when the appellate court's confidence in the verdict actually reached is undermined.' State v. Kohl, 2000 UT 35, ¶ 17, 999 P.2d 7 (quoting State v. Harrison, 805 P.2d 769, 781 (Utah Ct.App. 1991)). We conclude the trial court's ruling constituted reversible error. ¶ 51 Plaintiffs argue that any error on this issue is harmless because, even if Wiley Rein did not have an implied attorney-client relationship with the MWT, limited partners from 1988 to 1991, it still had continuing duties of loyalty and confidentiality to those plaintiffs as former clients, and the jury's conclusion that one or both of these duties were breached remains unaffected. However, as further explained below, this argument presupposes that Wiley Rein did, in fact, have an attorney-client relationship with each plaintiff at some time, an issue the jury was never able to decide because of the trial court's partial directed verdict ruling. ¶ 52 Plaintiffs assert that the jury's verdict was based on defendants' breaches of the fiduciary duties of loyalty and/or confidentiality. They correctly contend that the duty of confidentiality is a continuing one owed to former clients. Further, relying on the federal case of Damron v. Herzog, they contend that the duty of loyalty also continues after the termination of representation. See 67 F.3d 211, 213 (9th Cir.1995) ([W]e find in the common law a continuing duty owed by attorneys to former clients not to represent an interest adverse to a former client on a matter substantially related to the matter of engagement. When such a duty is breached, the former client may bring a cause of action at law.). Therefore, plaintiffs contend, the trial court's ruling was harmless because even if there was no attorney-client relationship during the time period in question, defendants still had duties of loyalty and confidentiality to plaintiffs as former clients. ¶ 53 We agree with plaintiffs that the duty of confidentiality continues after the termination of representation and that the duty of loyalty also prohibits an attorney from represent[ing] an interest adverse to a former client on a matter substantially related to the matter of engagement. Id. However, we disagree with the plaintiffs conclusion that, in light of this, the trial court's error was harmless. ¶ 54 We disagree because such a conclusion presupposes that, at some time, defendants did have an attorney-client relationship with those plaintiffs. While defendants admit that until 1986, Wiley Rein had an attorney-client relationship with MWT Company, they deny they ever had an attorney-client relationship with plaintiffs, and the testimony of David Wood supported this claim. Certainly, there was evidence presented below that would allow the jury to reject defendants' claims on this point. Plaintiffs presented evidence that Wood was retained by plaintiffs Kilpatrick, Gonzales, Joseph Lee, David Lee, Sidney Foulger, and Pratt to create MWT Company and that Wood continued to represent their interests after creating MWT Company and joining Wiley Rein. [11] Nevertheless, the key point is that the jury was never able to determine whether this was the case in light of the trial court's decision to grant plaintiff's motion for a partial directed verdict on this issue. This being so, our `confidence in the verdict actually reached is undermined,' Kohl, 2000 UT 35 at ¶ 17, 999 P.2d 7 (quoting Harrison, 805 P.2d at 781), and we conclude that there is a reasonable likelihood that, in [the] absence [of the trial court's error], there would have been a result more favorable to the complaining party. Child, 972 P.2d at 431. Accordingly, we reverse the jury's verdict and remand for a new trial.