Court Opinion

ID: 4219353
Source: CourtListenerOpinion
Date Created: 2017-11-09 20:24:38.495338+00
Date Added: 2024-06-11T07:47:47.312203
License: Public Domain

IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA

                         September 2017 Term                  FILED
                             __________                   November 9, 2017
                                                               released at 3:00 p.m.
                                                           EDYTHE NASH GAISER, CLERK
                             No. 15-0606                   SUPREME COURT OF APPEALS
                                                                OF WEST VIRGINIA
                             __________

 JOHN F. KAY, JR., Individually and as Trustee of THE MILDRED F. KAY
 TRUST, KAY T. ROBERTS and JEAN T. HOLT, Co-Executors of the Estate
of FLORENCE K. TEMPLE, W. RICHARD KAY, JR., HENRY W. BATTLE,
 JULIA T. HUTCHINSON, JENNIE GRAHAM, Executrix of THE ESTATE
  OF JAMES KIRK GRAHAM, MARGARET K. HUFFMAN, Executrix of
    THE ESTATE OF HENRY WILLIAM HUFFMAN, JAMES L. KAY,
   JOHN D. KAY, BARBARA G. RANDOLPH, WILLIAM M. MURPHY,
     Co-Trustee of THE JESSIE K. THAYER TRUST, MARGARET K.
     HUFFMAN, Co-Trustee of THE JESSIE K. THAYER TRUST, and
                     THE KAY COMPANY, LLC,
                               Petitioners

                                  v.

                      MCGUIREWOODS, LLP,
                           Respondent

     ______________________________________________________

            Appeal from the Circuit Court of Kanawha County

                      Honorable James C. Stucky

                       Civil Action No. 11-C-615

    AFFIRMED, IN PART; REVERSED IN PART; AND REMANDED
    _______________________________________________________

                     Submitted: October 17, 2017
                      Filed: November 9, 2017
Kelly Elswick-Hall, Esq.                 David B. Thomas, Esq.
Marvin W. Masters, Esq.                  Susan M. Robinson, Esq.
The Masters Law Firm, lc                 Bryant J. Spann, Esq.
Charleston, West Virginia                Sarah A. Leonard, Esq.
                                         Thomas Combs & Spann, PLLC
                                         Charleston, West Virginia
Mark A. Ferguson, Esq.                   Counsel for Respondent
Ferguson Law Offices
Charleston, West Virginia
Counsel for Petitioners

CHIEF JUSTICE LOUGHRY delivered the Opinion of the Court.
                                          SYLLABUS

                 1. The issue of whether causation and damages can be demonstrated in a legal

malpractice case following a settlement is one that necessarily must be determined on a case

by case basis.

                 2. “A plaintiff in a legal malpractice action has a general duty to mitigate his

or her damages. This doctrine requires a plaintiff to take reasonable steps within his or her

ability to minimize losses caused by the attorney’s negligence. However, a plaintiff is not

required to take actions which are impractical, disproportionately expensive, or likely futile.

The scope of a plaintiff’s duty to mitigate damages depends on the particular facts of the

case.” Syl. Pt. 4, Rubin Resources, Inc. v. Morris, 237 W.Va. 370, 787 S.E.2d 641 (2016).

                 3. “Generally, in a suit against an attorney for negligence, the plaintiff must

prove three things in order to recover: (1) the attorney’s employment; (2) his/her neglect of

a reasonable duty; and (3) that such negligence resulted in and was the proximate cause of

loss to the plaintiff.” Syl. Pt. 1, Calvert v. Scharf, 217 W.Va. 684, 619 S.E.2d 197 (2005).

                 4. Although damages in a legal malpractice claim are measured with reference

to the underlying claim of negligence, the malpractice claim is a separate and distinct claim.

As a result, a settlement agreement does not automatically extinguish a legal malpractice

claim.
LOUGHRY, Chief Justice:

                 The petitioners, former shareholders of Kay Company (“Kay Co.”) and Kay

Co, LLC (“Kay LLC”),1 appeal from two orders2 entered by the Circuit Court of Kanawha

County through which summary judgment was granted to the respondent McGuireWoods,

LLP (“McGuireWoods” or “MW”) in connection with claims the petitioners filed against

McGuireWoods, their former legal counsel.3 As grounds for their appeal, the petitioners

argue that the circuit court erred in ruling that a settlement reached by all but one of the

petitioners4 with the Internal Revenue Service (“IRS”) prevents them from establishing

causation and damages on any of their claims. The petitioners further challenge the circuit

court’s finding that there are no factual issues in need of resolution and its ruling that Mrs.

Graham’s status as a non-settler with the IRS prevents her from asserting claims against

MW. As part of this appeal, McGuireWoods alleges that the petitioners’ claims are barred

by the five-year statute of limitations which governs Virginia contract claims.5 Upon our

careful review of this matter, we conclude that the circuit court erred in reasoning that the

       1
           Kay Co., LLC is the successor corporation of Kay Co.

       2
           The first order was entered on May 27, 2015, and the second on December 5, 2016.

       3
       Those claims were grounded in legal malpractice; negligent misrepresentation; fraud;

detrimental reliance; and joint venture.
       4
        Mrs. Graham did not enter into a settlement with the IRS; the IRS agreed to forego
collection of the tax assessment from her husband’s estate. See infra note 18.
       5
           This claim was raised below but never ruled upon by the circuit court.

                                               1

settlement with the IRS prohibits the petitioners from going forward on all of their claims.

We further determine that the circuit court erred in ruling that the lack of a settlement with

the IRS precluded Mrs. Graham from asserting any claims against MW. We affirm the

lower court’s rulings with regard to detrimental reliance and joint venture.6 With regard to

the cross-appeal raised by McGuireWoods, we find no merit to the claim and, accordingly,

it is denied.

                           I. Factual and Procedural Background

                 At the center of this case is the sale of the Kay Co.,7 a transaction for which

the petitioner shareholders engaged MW to represent their interests. The petitioners initially

conferred with McGuireWoods to obtain tax advice with regard to the prospective sale of

the Kay Co. stock. One of the specific issues addressed was a concern that gains from the

sale and distribution of the Kay Co. stock would be taxed twice–once to the corporation and

then again to the individual stockholders. Due to the low basis of such stock,8 a huge tax

consequence was anticipated as a result of the sale.

       6
         The circuit court ruled in its December 5, 2016, order that the plaintiffs had
abandoned any independent claim of detrimental reliance based on a concession that such
reliance related to their claim of fraud. With regard to the plaintiffs’ claim of joint venture,
the trial court ruled in this same order that the plaintiffs had failed to produce any evidence
of the requisite profit-sharing agreement necessary to demonstrate such a theory.
       7
        Kay Co., a closely held family corporation, was formed in 1929 in West Virginia.
The company, whose primary business concerns were coal, oil, and gas, had acquired a stock
portfolio worth nearly $10 million dollars.
       8
           The low basis existed due to the lengthy period of ownership.

                                                2

                While conferring with McGuireWoods on an unrelated matter, Skip Roberts,

one of the Kay Co. Board members,9 mentioned the double taxation issue. He was referred

to a particular MW attorney based on his successful avoidance of double taxation in a

similar transaction. McGuireWoods advised Mr. Roberts that it could arrange a sale of Kay

Co. with favorable tax consequences for a contingent fee of $125,000.10 The MW attorney

later contacted Mr. Roberts to disclose a buyer with sufficient capital losses to offset gains

from the sale of Kay Co.’s portfolio. As a result of this proposed transaction, the MW

lawyer advised the Kay Co. shareholders that they would be taxed only once on the capital

gains from the sale.11

                In a letter dated July 5, 2000, MW described the structure of the proposed

transaction as well as the federal income tax consequences to both the shareholders and the

company. On the same date, McGuireWoods forwarded an engagement letter to the Kay Co.

Board of Directors.12 In the engagement letter, MW set forth the nature of its services as

       9
           Mr. Roberts was not a Kay Co. shareholder.
       10
         MW indicated that it had experience in arranging a transaction where, for a reduced
purchase price, an entity with purported business losses would purchase a corporation with
“built in” capital gains. In this case, the purchase price was set at 90% of the Kay Co.’s
portfolio of marketable securities–a reduction of approximately $1 million.
       11
         The individual stockholders would be subject to long-term capital gains taxes but
the corporation would effectively escape taxation based on the offsetting of the buyer’s
losses against the Kay Co.’s gains.
       12
        The engagement letter, dated July 5, 2000, was signed by the President of Kay Co.
in Charleston, West Virginia.

                                              3

“advising you in connection with the structuring, negotiating and closing of the Sale.”

McGuireWoods further agreed to provide legal advice “with respect to the federal income

tax consequences of the Sale to the Company and its shareholders.” To address issues of

West Virginia law, MW recommended that Kay Co. consult with local counsel concerning

“the Company’s legal standing in West Virginia and its outstanding stock.”13

               After numerous phone conferences, emails and letters were exchanged,14 the

sale of Kay Co. transpired on October 26, 2000. Pursuant to the arrangement outlined by

McGuireWoods in its July 5, 2000, correspondence, the stock of Kay Co. was purchased by

CMD Statutory Trust (“CMD Trust”). The funds required by CMD Trust to effect the

purchase of Kay Co. were leveraged, purportedly with the use of offshore funds. CMD

Trust immediately sold the company.15

      13
         As recommended by MW, Kay Co. retained both a West Virginia law firm and a
local accounting firm to give it additional advice.
      14
        MW claims that at least twenty conference calls transpired between it and the Kay
Co. in connection with the proposed sale.
      15
           The name of Kay Co. was changed by CMD Trust to CMD Co.

                                            4

                 On August 3, 2007, the IRS assessed twelve former shareholders16 of the Kay

Co. $2.7 million in taxes and $556,000 in penalties.17 In late 2009, all but one of the twelve

assessed shareholders elected to execute Closing Agreements and settle the tax dispute with

the IRS. Collectively, these former Kay Co. shareholders paid almost $1.8 million. Mrs.

Graham successfully obtained a Tax Court decision that her husband’s estate had no liability

as a transferee of the assets of the CMD Co. for the tax year ending October 26, 2000.18

When the IRS later sought to collect this same federal tax deficiency from Kay LLC, the

claim was settled for $5,000.19

                 On April 14, 2011, the petitioners filed the underlying action against MW in

the Circuit Court of Kanawha County.20 Immediately after the first deposition was taken,

MW filed a motion for summary judgment, which was denied by order issued on February

       16
      The IRS elected to assess only the Kay Co. Board of Directors who were named on
the MW engagement letter.
       17
         The IRS went after the former shareholders for the tax deficiency when CMD Co.
did not have sufficient assets to pay the taxes levied against it.
       18
         The petitioners maintain that the IRS ruling was based upon Nevada collection laws.
See Starnes v. C.I.R., 680 F.3d 417, 427-29 (4th Cir. 2012) (discussing 26 U.S.C. § 6901(a)
and explaining that “[a]n alleged transferee’s substantive liability for another taxpayer’s
unpaid taxes is purely a question of state law . . . ; plac[ing] the IRS in precisely the same
position as that of ordinary creditors under state law”).
       19
            The IRS did not assess Kay LLC until early 2010.
       20
            The case was removed to federal district court and then remanded.

                                               5

3, 2013. After substantial discovery had ensued,21 McGuireWoods filed a renewed motion

for summary judgment. As grounds for its motion, MW argued that the petitioners’

settlement with the IRS stood as a bar to any final adjudication concerning the legality of the

IRS assessment and the related issue of whether its tax advice to the petitioners constituted

legal malpractice. Through its ruling issued on May 27, 2015, the circuit court granted

MW’s renewed motion for summary judgment. Concluding that the IRS settlement

prevented the petitioners “from establishing the requisite causal connection between the

alleged wrongful acts or omissions of McGuireWoods . . . and any damages,” the circuit

court dismissed the complaint with prejudice.22 The circuit court similarly dismissed the

claim of Mrs. Graham based on its finding that she “has not suffered damages because of

any alleged malpractice by” MW.23

                 Following the petitioners’ appeal to this Court, we remanded the matter to the

circuit court “for the limited purpose of making findings and conclusions with regard to

petitioners’ claims for misrepresentation, fraud, detrimental reliance, and joint venture.”24

Complying with this directive, the circuit court ruled in its order of December 5, 2016, that

       21
            Twenty-six individuals were deposed by this time.
       22
         Despite its grant of summary judgment to MW on all of the petitioners’ claims
against it, the circuit court only addressed the claim of legal malpractice in its order.
       23
        The circuit court failed to acknowledge as potential damages the $24,000 in legal
fees Mrs. Graham incurred in challenging the tax assessment issued against her husband.
       24
            See supra note 22.

                                                6

the plaintiffs had abandoned their detrimental reliance claim.25 Grouping the negligent

misrepresentation and fraud counts together, the circuit court concluded that the plaintiffs’

settlement of the IRS claims precluded them from establishing liability and causation with

regard to those claims. Citing its previous ruling of May 27, 2015, the circuit court found

this Court’s decision in Calvert v. Scharf26 controlling, opining that the plaintiffs could not

prove they received inaccurate or negligent tax advice from MW given the absence of a

finding by a competent tribunal that the plaintiffs were actually liable for CMD Co.’s27

unpaid tax liability.28 Linking the misrepresentation and fraud counts to the same allegations

underlying the petitioners’ malpractice claim, the circuit court concluded that those counts

similarly “fail[ed] as a matter of law.”29 Addressing the plaintiffs’ joint venture claim, the

circuit court decided that this theory of imposing vicarious liability failed as a matter of law

for the same reasons the negligent misrepresentation and fraud claims failed. Citing the

absence of any profit-sharing arrangement between McGuireWoods and CMD Trust or

       25
       This conclusion was based on the circuit court’s finding that the plaintiffs had
conceded in their Memorandum in Opposition to Defendant’s Motion for Summary
Judgment that the alleged reliance pertained to their fraud claim.
       26
            217 W.Va. 684, 619 S.E.2d 197 (2005).
       27
            See supra note 17.
       28
       The circuit court further ruled that the plaintiffs could not establish that any
damages resulted from the rendering of MW’s tax advice.
       29
        The circuit court decided that the negligent misrepresentation claim failed for the
same reasons that the malpractice claim failed–inability to establish causation and damages.
And, because “the record does not support a professional malpractice claim, it cannot meet
the more stringent standard required to prove the intentional tort of fraud.”

                                               7

coequal control over a common commercial pursuit,30 the circuit court further concluded that

the plaintiffs had failed to produce evidence of a joint venture.

              The petitioners seek relief from the circuit court’s grant of summary judgment

and the related dismissal of their action with prejudice. McGuireWoods asks this Court to

affirm the lower court’s ruling and to grant its cross-appeal seeking application of the five-

year statute of limitations for contractual actions that arise under Virginia law.

                                  II. Standard of Review

              The plenary nature of our review of a summary judgment ruling is well-

established. See Syl. Pt. 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994). And

the standard we apply to the lower court’s decision to grant summary judgment is similarly

axiomatic: “A motion for summary judgment should be granted only when it is clear that

there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable

to clarify the application of the law.” Syl. Pt. 3, Aetna Cas. & Surety Co. v. Fed’l Ins. Co.

of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963). Bearing these standards in mind, we

proceed to consider whether the trial court erred in its grant of summary judgment.

       30
        See Armor v. Lantz, 207 W.Va. 672, 535 S.E.2d 737 (2000); accord Pyles v. Mason
Cty. Fair, Inc., No. 17-0300, __ W.Va. __, __ S.E.2d __ (November 1, 2017).

                                              8

                                  III. Discussion

              At the center of the challenged rulings is the postulate that the absence of a tax

court ruling validating the IRS assessment31 automatically precludes any claim by the

petitioners against McGuireWoods arising from its legal advice. Because the shareholders32

elected to settle after incurring substantial legal fees in challenging the tax assessments, the

circuit court ruled that certain issues bearing on the petitioners’ claims against MW can

never be adjudicated. While both the circuit court and MW view this Court’s decision in

Calvert as compelling this conclusion, a judicious reading of that opinion demonstrates

otherwise. See 217 W.Va. 684, 619 S.E.2d 197.

              The issue presented in Calvert was whether the intended beneficiaries of a will

had standing to bring a malpractice claim where a settlement precluded a determination of

       31
         MW maintains that if the petitioners had fully litigated the CMD Co. tax deficiency
assessed against them as transferees, they would have been successful. While both the circuit
court and McGuireWoods cite a Fourth Circuit case as authority “for the taxpayer on similar
facts,” that case did not resolve the issue of whether the former shareholders qualified as
transferees under federal tax law. Instead, it was decided under North Carolina law that the
Tax Commissioner failed to prove that a reasonably diligent person in the former
shareholders’ position would have had actual or constructive knowledge of the buyer’s non­
payment of the subject taxes. See Starnes, 680 F.3d at 430, 437; see also Weintraut v.
C.I.R., 2016 WL 4040793 at n.61 (U.S. Tax Ct. 2016) (discussing Starnes and stating “it
was irrelevant whether the taxpayers were transferees for purposes of sec. 6901” due to
court’s ruling that “the taxpayers were not liable under applicable State law”).
       32
        When denoting the shareholders in corporate fashion, we are referencing the eleven
shareholders who settled their claims with the IRS.

                                               9

whether the will had properly effectuated the testator’s intent. The issue of standing was

affirmatively resolved with our holding in Calvert that

              [d]irect, intended, and specifically identifiable beneficiaries of
              a will have standing to sue the lawyer who prepared the will
              where it can be shown that the testator’s intent, as expressed in
              the will, has been frustrated by the negligence of the lawyer so
              that the beneficiaries’ interest(s) under the will is either lost or
              diminished.

217 W.Va. at 685, 619 S.E.2d at 198, syl. pt. 2. Despite this favorable ruling on standing,

we further determined that the Calvert beneficiaries could not pursue a malpractice claim

“under the particular facts of this case” given their inability to demonstrate “they had

suffered damages that were proximately caused by attorney malpractice.” Id. at 686, 619

S.E.2d at 199.

              As we explained in Calvert, “in order to prevail in a malpractice action against

a lawyer, the plaintiff must establish not only his or her damages, but must additionally

establish that, but for the negligence of the lawyer, he or she would not have suffered those

damages.” 217 W.Va. at 695, 619 S.E.2d at 208. The decision of the intended beneficiaries

to settle the underlying declaratory judgment action was determined to bar the resolution of

the issue of whether any negligence in the drafting of the subject will proximately caused

injury to the Calverts. Id. at 696, 619 S.E.2d at 209. Due to the unitary issue asserted in the

declaratory judgment action of whether the will validly exercised the power of appointment,

this Court recognized that the settlement of the declaratory judgment action prevented that

                                              10

issue from being decided. And, absent that determination, the intended beneficiaries could

not demonstrate they had suffered loss as a result of the will’s drafting.

              Seeking to obtain the same result as in Calvert, MW argues that the settlement

agreement itself was what barred the intended beneficiaries from proceeding against the

will’s preparer. But when this Court concluded in Calvert that damages could not be linked

to the will’s drafting in that case, we were not ruling that a settlement agreement proscribes

proof of causation in all instances. The critical issue of whether causation and damages can

be demonstrated in a legal malpractice case following a settlement is one that necessarily

must be determined on a case by case basis.33 This is clear from a review of our cases in this

area. See, e.g., Rubin Resources, Inc. v. Morris, 237 W.Va. 370, 787 S.E.2d 641 (2016)

(reversing circuit court’s ruling that malpractice plaintiff’s settlement with third party

precluded finding that alleged damages were proximately caused by attorney’s negligence);

Burnworth v. George, 231 W.Va. 711, 749 S.E.2d 604 (2013) (upholding summary

judgment for lawyer because plaintiff was unable to prove he sustained damages from

failure to conduct title search where plaintiff disregarded attorney’s advice to delay closing

for deed of trust inspection and then, through stipulated settlement, forgave collateral

including allegedly defective deed of trust); Sells v. Thomas, 220 W.Va. 136, 640 S.E.2d
33
          In its response to the petitioners’ supplemental brief, MW recognizes that the unique
facts of a given case govern the issue of whether an attorney’s negligence may be established
following settlement.

                                              11

199 (2006) (reversing grant of summary judgment to attorney in malpractice case due to

genuine issues of fact regarding whether attorney’s failure to pursue underinsured motorist

claim prior to settlement caused damage to client). In trying to equate the effect of the

settlement in Calvert to the effect of the IRS settlement in this case, MW reaches too far.

Unlike Calvert, where the testamentary dispute was no longer justiciable due to settlement,

the issue presented here of whether the advice given to the petitioners by MW constituted

malpractice, misrepresentation, or fraud can still be litigated. In clear contrast to Calvert,

the IRS settlement did not extinguish the claims at issue here.

              Furthermore, in Morris this Court squarely rejected the position advanced by

MW. Like this case, the malpractice at issue was transactional as opposed to litigation-based

malpractice.34 Based on a negligent title examination that failed to identify a declaration of

pooling, the malpractice plaintiff, Rubin Resources, sought to recover damages for its lost

opportunity to substitute a different piece of property in the event of a title defect and lost

proceeds from a gas production agreement that fell through upon discovery of the title

defect. 237 W.Va. at 372-73, 787 S.E.2d at 643-44. When the owner of the oil and gas

leasehold estate informally asserted claims against Rubin Resources, a settlement agreement

was reached. Relying on Calvert, the trial court determined that the settlement precluded

       34
         As we explained in Morris, transactional malpractice pertains to alleged wrong­
doing in connection with the giving of advice or preparation of documents for a business
transaction. See Morris, 237 W.Va. at 374, 787 S.E.2d at 645.

                                              12

any finding that the malpractice damages sought by Rubin Resources were proximately

caused by the attorney’s admitted negligence.35 When Rubin Resources argued that Calvert

does not stand for the proposition that plaintiffs cannot maintain a legal malpractice action

after settling a lawsuit, this Court emphatically agreed. 237 W.Va. at 376, 787 S.E.2d at

647.

              In explanation of why the settlement in Morris was not a bar to a malpractice

proceeding, we simply stated that this Court “declined [in Calvert] . . . to deviate from the

proximate cause standard.” Id. Acknowledging our lack of elaboration in Morris, we now

clarify that the reason why a settlement agreement does not automatically extinguish a legal

malpractice-based claim is because the settled claim is a separate and distinct claim from that

of the malpractice action. In Parnell v. Ivy, 158 S.W.3d 924 (Tenn. Ct. App. 2004), a case

we cited in Morris, the appellate court explained why a settlement of the underlying lawsuit

does not stand as an automatic bar to a malpractice action: “Though the amount of damages

in a malpractice action are measured with reference to the damages sought in the underlying

suit, the injuries suffered by a plaintiff in a malpractice suit are separate and distinct from

those suffered in the underlying suit.” Id. at 927. Expounding further, the court observed:

              “Where the termination is by settlement rather than by a
              dismissal or adverse judgment, malpractice by the attorney is
              more difficult to establish, but a cause of action can be made out

       35
        While admitting negligence as to the title examination, the attorney denied that his
negligence proximately caused the damages sought by Rubin Resources.

                                              13

              if it is shown that assent by the client to the settlement was
              compelled because prior misfeasance or nonfeasance by the
              attorneys left no other recourse * * * * [The] cause of action for
              legal malpractice must stand or fall on its own merits with no
              automatic waiver of a plaintiff’s right to sue for malpractice
              merely because plaintiff had voluntarily agreed to enter into a
              stipulation of settlement.”

Parnell, 158 S.W.3d at 928 (quoting Titsworth v. Mondo, 407 N.Y.2d 793, 796 (N.Y. Sup.

Ct. 1978)).

               By insisting that the IRS settlement precludes any subsequent determination

of negligence on its part, MW demonstrates a flawed understanding of Calvert. Moreover,

MW goes further astray in claiming that the petitioners’ proof of damages is dependent on

a judicial upholding of the IRS tax assessment.36 Critically, the petitioners have not limited

the recovery they seek from MW to the amounts they paid to settle the IRS tax assessment.

The nature of their malpractice-based claims is decidedly broader than that. As set forth in

the amended complaint, the petitioners’ claims of legal malpractice, misrepresentation, and

fraud are grounded in the following averments:

              29. Plaintiffs specifically asked McGuire to ensure that none of
              the parties were engaged in any improper activities, it being the
              desire of Kay Co. and its shareholders to only complete the
              contemplated transaction if it was completely legitimate, and
              would not subject the Kay Co. or Kay LLC to any liability for
              corporate taxes arising out of the liquidation of the Portfolio
              Securities, thereby limiting their potential taxes only to the

       36
        MW argues that absent a Tax Court ruling that the IRS assessment was valid, there
can be no causal connection between the attorney’s advice and the client’s alleged damages.

                                             14

              capital gains attributable to their shares of the Kay Co. as
              outlined in the McGuireWoods opinion letter issued at closing.
              30. In this regard, Plaintiffs on more than one occasion asked
              McGuire and Rohman to confirm that the transaction was
              legitimate and proper.
              31. In response to these requests, McGuire assured the
              Plaintiffs of the transactions [sic] legitimacy. In fact a McGuire
              attorney stated, in an email to certain Kay Co. directors dated
              October 23, 2000, that Rohman “is confident that our tax
              structure could not be disregarded.”

                     ....

              35. McGuire had a duty and responsibility to inform and advise
              Plaintiffs of the potential tax liabilities they might face and the
              other consequences which Plaintiffs might incur if they entered
              into the transaction as designed by McGuire, or to advise
              Plaintiffs that they should not enter into the transaction due to
              the laws, rules and regulations of the Internal Revenue Service
              and the advisory opinions and letters and federal court opinions
              interpreting the same.
              36. McGuire had a further duty and responsibility to Plaintiffs
              to investigate the validity of the purchaser of the stock of Kay
              Co. to reasonably ensure that the purchaser was a legitimate
              business and in full compliance with applicable tax laws and
              that the entity indeed had legitimately incurred tax losses in its
              business.

              In specifying the damages they are seeking, the Petitioners aver the following:

“Plaintiffs have been required to pay additional taxes, penalties and interest and incur legal

fees, costs and expenses, . . . and have been embarrassed, humiliated, suffered emotional

distress, lost income and opportunity in their business and personal finances and business,

have suffered annoyance and inconvenience and have otherwise been damaged.” Without

a doubt, the IRS settlement is a component of the damages that the Petitioners seek.

                                              15

Critically, however, the damage averments and the ad damnun clause are not confined to or

limited by the amount of the IRS settlement.

              While MW faults the petitioners for settling with the IRS rather than litigating

until the issuance of a Tax Court ruling, the law does not penalize the petitioners for their

decision. In fact, as we made clear in syllabus point four of Morris, the law encourages the

mitigation of damages:

              A plaintiff in a legal malpractice action has a general duty to
              mitigate his or her damages. This doctrine requires a plaintiff
              to take reasonable steps within his or her ability to minimize
              losses caused by the attorney’s negligence. However, a plaintiff
              is not required to take actions which are impractical,
              disproportionately expensive, or likely futile. The scope of a
              plaintiff’s duty to mitigate damages depends on the particular
              facts of the case.

237 W.Va. at 372, 787 S.E.2d at 643; see also Alagia, Day, Trautwein & Smith v.

Broadbent, 882 S.W.2d 121, 125-26 (Ky. 1994) (discussing fact that occurrence of legal

harm and damages were fixed by settlement between IRS and taxpayer law firm).

              Whether the petitioners in this case can meet the standard for establishing legal

malpractice is far from clear. That standard was set forth in syllabus point one of Calvert:

“Generally, in a suit against an attorney for negligence, the plaintiff must prove three things

in order to recover: (1) the attorney’s employment; (2) his/her neglect of a reasonable duty;

and (3) that such negligence resulted in and was the proximate cause of loss to the plaintiff.”

                                              16

217 W.Va. at 685, 619 S.E.2d at 198. Despite the uncertainty of whether the petitioners can

prove any of their claims, one thing is certain–the existence of the IRS settlement does not

serve as a bar to the petitioners’ attempt to prove they were damaged as a result of the legal

advice McGuireWoods provided to them.37 As the court articulated in Parnell, although

damages in a legal malpractice claim are measured with reference to the underlying claim

of negligence, the malpractice claim is a separate and distinct claim. See 158 S.W.3d at 927.

As a result, a settlement agreement does not automatically extinguish a legal malpractice

claim.

                   In ruling that there were no genuine issues of fact to be resolved with regard

to the petitioners’ claims of legal malpractice, negligent misrepresentation, and fraud the

circuit court committed error. However, we find no error in the trial court’s rulings with

regard to detrimental reliance38 and joint venture, and accordingly affirm judgment for MW

on those claims. Given the clear formation of the contract of legal representation in this

         37
        While MW argues that the tax laws under which the IRS pursued the petitioners did
not change until after the sale of Kay Co., the petitioners disagree and cite to a notice which
was released by the IRS on August 13, 2000, prior to the sale, which indicates that “Son of
Boss [bond and sales strategies]” transactions were illegal and thus subject to close scrutiny.
         38
              See supra note 25.

                                                 17

state,39 we find no merit to the cross-assignment through which MW seeks to apply

Virginia’s five-year statute of limitations for contract claims.40

              Based on the foregoing, the summary judgment ruling entered by the Circuit

Court of Kanawha County on May 27, 2015, is reversed; with regard to the clarifying rulings

issued on December 5, 2016, we affirm the finding that the detrimental reliance claim is part

of petitioners’ fraud claim and we affirm the finding that the petitioners have failed to prove

the existence of a joint venture; we reverse the findings that the petitioners’ claims of legal

malpractice, negligent misrepresentation, and fraud fail as a matter of law due to their

settlement with the IRS; accordingly, this matter is remanded to the circuit court to permit

the petitioners41 to proceed on their claims of legal malpractice, negligent misrepresentation,

and fraud.

                                           Affirmed, in part; reversed, in part; and remanded.

       39
         See Syl. Pt. 3, State ex rel. Coral Pools, Inc. v. Knapp, 147 W.Va. 704, 131 S.E.2d
81, 82 (1963) (“When a contract results from an offer made in one state and an acceptance
in another state, the contract generally will be deemed to have been made in the state in
which the acceptance occurs.”).
       40
        This Court’s venue-based ruling in Thornhill Group, Inc. v. King, 233 W.Va. 564,
759 S.E.2d 795 (2014), has no bearing on the choice of law issue presented in this case.
       41
        Mrs. Graham is included in this ruling. The fact that she did not settle with the IRS
has no impact on anything other than the amount of her damages.

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