Opinion ID: 1681759
Heading Depth: 3
Heading Rank: 2

Heading: Different-course damages

Text: The plaintiffs presented substantial evidence indicating that, during the statutory period, Price's service on the IRS dispute fell below the professional standard of care for a lawyer in three respects: (i) he failed to disclose that he was simultaneously representing parties whose interests were conflicting; (ii) he knew, but failed to disclose to the parties he was representing, that Buddy lacked authority to complete the stock redemption on behalf of the children's trust; and (iii) he advised his clients to contest the IRS's stock valuation but did not fully advise them about other options that were available when the IRS dispute arose in 1994. Particularly, the plaintiffs proved that Price was derelict in his duty to advise his clients of their option to seek to rescind the stock redemption. According to the plaintiffs, Price's malpractice forced them on the following course to protect their interests: (a) settling the IRS dispute in September 1996; (b) suing all the defendants in November 1996; and (c) finally, settling their claims against TBC and Buddy in 2001. Hoffman opined that, had Price fully disclosed his conflicts and his clients' options when the IRS dispute arose in 1994, events could have transpired differently. With those disclosures, the plaintiffs assert that the stock-valuation dispute could have been settled earlier on more just, fair, and less acrimonious terms, and that the litigation and resulting litigation damage would have been avoided. The plaintiffs' claims for different-course damages relate to Price's work on the IRS dispute; accordingly, the recovery of damages for that harm is not time-barred because, if proven by substantial evidence, the harm occurred within the statutory period. For the following reasons, however, we find that the plaintiffs did not satisfy that burden. First, the plaintiffs alleged, but did not prove, what different course would have been taken had Price made full disclosures and provided impartial advice to them in 1994. There is no probative evidence indicating that the plaintiffs would have pursued the rescission option and not followed the chosen course if they had been fully apprised of that option in 1994 when the IRS dispute arose. Indeed, Price advised Ragland in April 1995 that the estate might have the right to rescind the stock redemption, but the estate did not then pursue that remedy. [23] Had the estate elected the rescission option in 1994, the following consequences would have followed: 1. The estate would have been obligated to return approximately $1.5 million in consideration that TBC had paid to it and Tully for his stock between 1986-1996; 2. The estate would have incurred federal estate tax liability based on the inclusion of the total value of Tully's 3,300 shares in his estate at his death in 1991, not merely the difference between the assumed $500 per share value and $665 valuation used to settle the IRS dispute. There is no evidence in the record indicating the value of Tully's shares at the estate valuation date in 1991; and 3. The income tax treatment for Tully (and the estate) for payments received from TBC in the years preceding the rescission would have been revisited. Further, Ragland testified that the estate's acceptance of the IRS's position in the valuation dispute would have bankrupted the estate. Instead of agreeing to pay taxes based on a substantially higher valuation of TBC stock or rescinding the stock redemption in 1994, the estate cooperated with TBC and Buddy, contested the stock-valuation dispute, and settled that dispute on the assumption that, albeit undervalued, the transfer of Tully's 3,300 shares to TBC in 1986 was valid. Moreover, there is no substantial evidence indicating that the children's trust would not have followed the course it followed if, in 1994, Price had advised that trust of its right to claim rescission. [24] Had an independent trustee of the children's trust evaluated the rescission option in 1994, an analysis of multiple factors would have been necessary before the trust elected to rescind the transfer of its 1,088 shares to TBC. First, that trust would have been obligated to return approximately $350,000 paid by TBC in consideration for those shares from 1986-1996. Further, the beneficiaries of the children's trust were also the beneficiaries of the family trust that was one of the devisees of Tully's will. If both the children's trust and the estate had rescinded the stock redemption in 1994, the benefit to the beneficiaries of the trust from rescission would, to an extent not quantified in the record, have been mitigated because the value of the estate would have been reduced by the estate's increased tax liability and its refund of the consideration that the estate and Tully received from TBC for Tully's 3,300 shares. Moreover, even after the plaintiffs asserted their rescission claims in 1996, they relinquished them in 2001 and ratified the stock redemption in the settlement of their claims against TBC and Buddy. Considering all these circumstances, we conclude that the plaintiffs did not prove, and it is speculative to assume, that they would have embarked on a different course had Price fully disclosed his conflicts and their legal options when the IRS dispute arose in 1994. Additionally, even assuming that Price's malpractice on the IRS dispute caused the plaintiffs to pursue an imprudent course, their different-course damages were not quantified. Hoffman testified as follows on cross-examination at trial: Q: But as you sit here today, you're not prepared to share with us any kind of analysis that you've done to be able to tell these ladies and gentlemen, boy, if they'd undone that [stock-redemption] transaction here's how all that would have come out. You haven't done that work? A: No, I haven't. I can tell you for a fact though that the beneficiaries, other than Buddy Turner, because of their interests in the trust and being the only beneficiaries of the [children's] trust, and their three-quarter interest as residual beneficiaries in the estate would have come out much better had [the stock redemption] been undone. I can't say as to what the effect of Mr. Buddy Turner would have been. Q: Okay. And you haven't A: But I can't map that out for you dollar for dollar. . . . . Q: But you haven't taken all this information [about corporate distributions] and done the kind of analysis that we just talked about in terms of being able to tell us specifically what the economic consequences or damages would have been had the [stock-redemption] transaction been undone? A: With absolute specifics? No sir, I have not. On redirect examination by plaintiffs' counsel, Hoffman further testified: Q: [Price's counsel] showed you these distributions from [TBC]. You don't have to do a lot of calculation. But if this stock transaction was nullified from '94 through '96, we know [the plaintiffs] had 88 percent of the stock, don't we? A: The combination of the estate and the trust, that's correct. Q: So you could just calculate 88 percent of these numbers [on distributions] in here and calculate what the estate and the trust lost by not having this stock back there, can't you? A: That's correct. That's very simple math. That's not complicated. Considering this testimony, the plaintiffs did not attempt to calculate the financial consequences of a different course had Price made full disclosures in 1994. Instead, their proof focused on the distributions they did not receive as a result of selling their shares in 1986 and losing control of TBCa claim that is time-barred for the reasons stated above. Under these circumstances, the plaintiffs did not prove their different-course damages by substantial evidence. [25]