Phillip BOHNA, Appellant, v. HUGHES, THORSNESS, GANTZ, POWELL & BRUNDIN, and Allstate Insurance Company, Appellees. ALLSTATE INSURANCE COMPANY, Cross-Appellant, v. Phillip BOHNA, and Hughes Thorsness, Gantz, Powell & Brundin, Cross-Appellees. HUGHES, THORSNESS, GANTZ, POWELL & BRUNDIN, Cross-Appellant, v. Phillip BOHNA, and Allstate Insurance Company, Cross-Appellees.
No. 3824
Supreme Court of Alaska
March 27, 1992
828 P.2d 745
Ronald L. Bliss, Jean E. Kizer, Bradbury, Bliss & Riordan, Anchorage, for appellee and cross-appellant Allstate.
Stephen S. DeLisio, Staley, DeLisio, Cook & Sherry, Inc., Anchorage, for appellee and cross-appellant Hughes Thorsness.
Before RABINOWITZ, C.J., and MATTHEWS, COMPTON and MOORE, JJ.
OPINION
MATTHEWS, Justice.
INTRODUCTION
These appeals arise from judgments in an attorney malpractice case and a related indemnity claim. The jury returned a verdict setting damages suffered by plaintiff Phillip Bohna and assigning fault among:
The basis of the malpractice claim was HT‘s handling of Bohna‘s defense after Bohna was involved in an automobile collision which resulted in catastrophic injuries to the other driver. The crux of Bohna‘s complaint is that in order to save money for Allstate, HT pursued a strategy of making offers of judgment in excess of policy limits under
Bohna sued both Allstate and HT. Before trial, Allstate settled with Bohna for $1 million. They also entered into a “loan receipt agreement” under which Allstate loaned Bohna $3 million, which would be repayable out of (and to the extent of) any recovery Bohna might obtain in his suit against HT. After the settlement, Allstate cross-claimed against HT for indemnity.
The jury returned a verdict of approximately $6 million for Bohna. Based on its interpretation of the law and the agreements between Bohna and Allstate, the trial court reduced the verdict by the $1 million settlement and part of the $3 million loan. The court also deducted 15% for Bohna‘s negligence and failure to mitigate damages, as found by the jury. Finally, in accord with a pretrial ruling that comparative indemnity principles do not apply in Alaska, the court entered judgment in HT‘s favor on Allstate‘s cross-claim because the jury also found Allstate partially at fault.
On appeal the parties dispute the validity of the loan receipt agreement and to what extent—if any—it should result in a setoff. Also disputed are the alleged assignment of Bohna‘s malpractice claim, the propriety of the jury‘s consideration of the issues of Bohna‘s failure to mitigate damages and contributory negligence, the sufficiency of the evidence relating to an attorney‘s standard of care, the court‘s allocation of peremptory challenges, the exclusion of certain evidence, various jury instructions, and the award of costs and attorney‘s fees. With regard to Allstate‘s failed indemnity claim, the issues are whether the trial court erred by ruling that Allstate had to be found fault-free to recover, denying Allstate‘s motion to amend its cross-claim, and refusing to allow the jury to decide if Allstate breached its covenant of good faith and fair dealing.
For the reasons set forth below, the Bohna judgment is reversed and remanded with direction to enter an amended judgment in Bohna‘s favor. The HT judgment is affirmed.
FACTS AND PROCEEDINGS
The Underlying Case
In 1981 Phillip Bohna was involved in a collision which left the driver of the other car, Anthony Stevens, brain damaged and quadriplegic. During the course of the ensuing litigation, it became clear that the liability picture did not look good for Bohna.1
Only seventeen at the time of the accident, Bohna had no significant assets of his own. However, he was covered by his father‘s automobile liability insurance policy with Allstate. That policy provided for $50,000 bodily injury liability coverage plus unlimited coverage for prevailing party‘s attorney‘s fees under
We note, in order to set the context of this case, that under
The dispute between Bohna and Stevens ultimately came down to the question of how much was available under the policy‘s unlimited coverage for attorney‘s fees. Stevens hired attorney Ray Nesbett to represent him. Nesbett and an Allstate claims manager discussed a possible settlement, but they could not come to terms.4 Stevens sued Bohna on August 16, 1983. Allstate retained James Powell, a partner at HT, to defend Bohna.
Powell offered Nesbett $50,000 for Stevens’ bodily injury. However, Nesbett and Powell disagreed on the proper size of the
In late 1983, Powell proposed that Bohna make offers of judgment under
In September 1986, Nesbett offered to settle for $350,000. This offer remained open for fifteen days. On September 15, a new
Finally, in October 1986, Powell proposed a $3 million offer of judgment, which was agreed to by Allstate. At this point, Nesbett felt that it was possible that Stevens might obtain a less favorable judgment if he went to trial. If this were to happen, not only would Stevens be ineligible to recover his attorney‘s fees incurred after the offer was made, but he also would be responsible for such fees to HT.10 Nesbett therefore accepted this offer, and on October 30, 1986, judgment was entered against Bohna (the Stevens judgment). With prejudgment interest, it amounted to over $4.6 million.11
In October 1987, Bohna began bankruptcy proceedings. Nesbett then informed Bohna‘s bankruptcy attorney, William Pace, that the Stevens judgment might not be dischargeable because alcohol was in-
The Current Litigation
Bohna sued Allstate and HT claiming negligence, breach of fiduciary duty, and breach of the covenant of good faith and fair dealing. He sought over $6 million in compensatory damages and over $12 million in punitive damages. Allstate cross-claimed against HT, seeking indemnity for any liability Allstate might have to Bohna arising out of HT‘s actions.
In August 1989, the trial court ruled that Allstate had breached its implied covenant of good faith and fair dealing, as a matter of law, by authorizing offers of judgment in excess of policy limits. After this ruling, Allstate and Bohna settled. The settlement included a $1 million payment by Allstate to Bohna and a “loan receipt agreement” (LRA) whereby Allstate loaned Bohna $3 million to be repaid out of any recovery Bohna might get from his suit against HT.12 In exchange Bohna released Allstate from all liability to Bohna. In addition, Bohna agreed not to dismiss his case against HT without Allstate‘s written consent.13
A week after reaching these agreements, Allstate moved for leave to amend its cross-claim against HT to assert various direct causes of action. The trial court denied this motion, reasoning that the motion was too late and that it would preju- dice HT by requiring additional discovery just weeks before trial. At a hearing a few days later, the court made an oral ruling that Allstate‘s cross-claim against HT for indemnity would be barred if Allstate were found to have any fault for Bohna‘s damages.
The case was tried before a jury which returned a verdict finding all three parties partially at fault for Bohna‘s damages. On a special verdict form, the jury allocated fault among the parties as follows: Bohna—15%, HT—34%, Allstate—51%. Bohna‘s damages were found to be “the value of [the Stevens] Judgement plus interest and costs.” The jury found that Bohna failed to mitigate his damages and this failure on his part was responsible for 15% of the loss. The jury also found that punitive damages were not appropriate. As a result of the jury having found Allstate partially responsible for Bohna‘s damages, the trial court entered final judgment against Allstate on its cross-claim for indemnity (the HT judgment).
In February 1990, the trial court issued an order calculating the judgment on Bohna‘s claim against HT. The court began by translating the jury‘s verdict into the numerical figure of $6,139,544.94.14 After deducting $1 million paid by Allstate under the settlement agreement and some $920,000 as the result of Bohna‘s failure to mitigate his damages (leaving some $4.2 million), the court then explained how it dealt with the $3 million paid under the LRA. Although the court‘s explanation is complicated, it rests on the following prem-
DISCUSSION
A. CALCULATION OF JUDGMENT
Since many of the contentions of the parties in this case involve the deductions which the trial court made from Bohna‘s judgment against HT, an explanation of those deductions is necessary.
| $6,139,544.94 | = | Verdict before deductions. |
| - 920,931.74 | = | 15% comparative fault allocated to Bohna. |
| -1,000,000.00 | = | Settlement paid Bohna by Allstate. |
| $4,218,613.20 | = | Subtotal. |
| $4,218,613.20 X .34 | = | Percentage of fault jury found belonged to HT. |
| $1,434,328.41 | ||
| $3,000,000.00 | = | Amount of “loan.” |
| -1,434,328.41 | = | Amount of verdict that equals HT‘s percent of fault. |
| $1,565,671.59 | = | Amount of “loan” forgiveness received by plaintiff which is additional consideration paid by Allstate for the release. |
| $4,218,613.20 | = | Amount of verdict after undisputed setoff and plaintiff‘s mitigation damages are deducted. |
| -1,565,671.59 | = | Additional consideration received by plaintiff from Allstate for release. |
| $2,652,941.61 | = | Verdict, after plaintiff‘s claim is reduced for amounts received by him from Allstate. |
| X .34 | = | Percentage of fault of HT. |
| $902,000.15 | = | Amount of plaintiff‘s uncompensated claim for which HT is responsible. |
1. Deduction for Percentage of Fault Attributed to HT.
The trial court reduced HT‘s liability in accordance with its percentage of fault. The trial court apparently applied the current version of
Alaska Statute 09.17.080(d) as it existed in 1986 provided that joint tortfeasors were jointly and severally liable for all of plaintiff‘s damages, except that a tortfeasor could not be jointly liable for more than twice its percentage of fault.16 Thus, the trial court erred in reducing HT‘s liability in accordance with its percentage of fault. Applying the appropriate version of
2. Deduction for Comparative Negligence or Failure to Mitigate Damages.
The jury allocated 15% of the total fault to Bohna for his comparative negligence and failure to mitigate his damages. Bohna argues that there should have been no deduction because neither the comparative negligence nor the failure to mitigate theories should have gone to the jury.
a. Comparative Negligence.
HT argues that Bohna was comparatively negligent by failing to inform HT of his dyslexia, a condition which might have impaired his ability to give informed con-
In order for Bohna to prevail on this question, we must find, after reviewing the record, that HT‘s claim for comparative negligence was limited to the dyslexia issue, and that Bohna withdrew any claim that he lacked capacity due to dyslexia. We find that the record supports Bohna‘s position.
First, in response to Bohna‘s motion for directed verdict on the issue of comparative negligence, HT‘s attorney stated that
[w]ith regard to the comparative negligence issue, I thought about that over the weekend, as to what the elements of comparative negligence are here, and I think there‘s one are[a]; ... and this is dependent upon what they‘re going to claim, but I think that they have claimed it and there is evidence on both sides of the issue. And, that is Phil Bohna—if Phil Bohna is contending that he did not understand what he was doing because he had some sort of a disability, then it is our contention that he was negligent in not making that known to us....
That is the only area that I am currently aware of, after having really thought about it and reviewed my notes and that sort of thing, that gets into the comparative negligence area.
(Emphasis added.) HT‘s attorney took the same position in closing argument to the jury:
[I]n terms of [Bohna‘s] negligence, there‘s only one area; and that is if Mr. Bohna, and maybe this is no longer a contention for Mr. Sandberg‘s argument. If Mr. Bohna ... wants you to believe that somehow he did not understand or was impaired in his ability ... to give informed consent, then he was negligent for not informing Hughes, Thorsness of his impairment.... [T]hat may no longer be an issue in the case if Mr. Sandberg means what he says about they‘re not contending that he didn‘t understand.
(Emphasis added.) Thus, HT‘s claim for comparative negligence was limited to Bohna‘s dyslexia.
Second, Bohna‘s attorney confirmed in closing argument that Bohna withdrew any claim based on lack of capacity:
Mr. DeLisio discussed the fact that whether or not Mr. Bohna is somehow comparatively negligent, and he said he doesn‘t make that claim unless we claim that Mr. Bohna lacked the capacity to sign the consent. We don‘t make that claim.
Before the trial court instructed the jury, Bohna moved to withdraw the issue of comparative negligence from the jury‘s consideration, but the trial court denied the motion. In this the trial court erred because together these representations by counsel effectively withdrew the issue of comparative negligence from the case.
b. Failure to Mitigate.
Bohna maintains that no instruction on failure to mitigate should have been given, arguing that “[a]n insured client has no duty to take bankruptcy to mitigate the damages for which his lawyer or insurer may be liable.” HT counters that under the facts of this case Bohna did have a duty to mitigate his damages by attempting to discharge his debt in bankruptcy because: 1) he was advised that if he agreed to the excess offer of judgment strategy, he would likely have to attempt to discharge the excess judgment in bankruptcy; and 2) after consulting with an independent attorney, he indicated that he would follow that strategy.18 We agree
Although the parties frame this issue as a question of duty, we note that Bohna‘s bankruptcy would not have reduced HT‘s liability. HT‘s malpractice not only caused Bohna to incur liability to Stevens, but also created an asset. This asset is Bohna‘s malpractice claim against HT. Had Bohna filed for bankruptcy, a court would have appointed a bankruptcy trustee whose duties would have included collecting all of Bohna‘s assets including his malpractice claim against HT. See
Moreover, even if Bohna‘s bankruptcy would have reduced HT‘s liability, we hold as a matter of public policy that the duty to mitigate does not extend to filing for bankruptcy.19 As we observed in Anchorage Independent School District v. Stephens, 370 P.2d 531, 533 (Alaska 1962), the rationale behind the duty to mitigate damages “is a recognition that legal rules are designed not only to prevent and repair individual loss and injustice, but to protect and conserve the economic welfare and prosperity of the whole community.” No one‘s interests are served by allowing a plaintiff to recover as damages that which the plaintiff could have reasonably avoided in the first place.
Under the present circumstances, Bohna‘s bankruptcy would not serve the long-run economic welfare and prosperity of the community. This is so because the primary victim in this case is Stevens. Bohna‘s injury derives from Stevens’ injury. Unfortunately, there is no way Bohna could “mitigate” the damages he caused Stevens.
On the other hand, Bohna had liability insurance which serves two purposes: to protect Bohna from the financial ruin of having to pay Stevens’ loss, and to compensate Stevens for his loss. The offer of judgment strategy was clearly in conflict with both purposes. First, liability insurance is supposed to protect an insured from bankruptcy, rather than facilitate an insured‘s entry into that process. Second, insureds and their insurers cannot agree to reduce applicable insurance coverage after an accident occurs. That was the objective of the excess offer of judgment strategy, which necessarily included Bohna‘s bankruptcy.20 This strategy contravened public
For these reasons, we conclude that the trial court erred in deducting $920,931.74 for Bohna‘s alleged comparative fault or failure to mitigate damages. With only Allstate and HT left to share the fault, they are responsible for the 15% which the jury assigned to Bohna. They share this additional burden in the ratio originally allocated between them by the jury, 51/34. This results in Allstate‘s fault totalling 60% and HT‘s totalling 40%.
3. Deduction for the Loan Receipt Agreement (LRA).
All parties contend that the trial court erred in its treatment of the LRA. Bohna and Allstate22 maintain that it was error for the court to deduct any portion of the $3 million loan from the jury verdict. HT argues that, for various reasons, the LRA violates Alaska law and public policy, and thus the entire $3 million should have been deducted from the verdict.23
Loan receipt agreements originated as a mechanism for insurance companies to compensate their insured who had suffered injury or damage while preserving their rights against potentially liable third parties. After the insured suffered a loss, the insurer would loan the amount of the loss to the insured with the loan to be repaid out of any recovery against a third party. Structuring the transaction as a loan also allowed the insurer to avoid being the named plaintiff in a subsequent action to determine liability.24 Early in this century, the United States Supreme Court approved the use of the LRA in this context. The Supreme Court recognized the LRA had the laudable effect of promptly delivering compensation to the injured plaintiff. See Luckenbach v. W.J. McCahan Sugar Refining Co., 248 U.S. 139, 149, 39 S.Ct. 53, 55, 63 L.Ed. 170 (1918). This type of arrangement is still generally considered lawful. See 16 Couch on Insurance § 61.79 (M. Rhodes rev. 2d ed. 1983); Annot., 13 A.L.R.3d 48-49.25
Use of the loan receipt device has expanded beyond the insurer/insured context into the plaintiff/co-defendant context.26
Notes
Unless the court, in its discretion, otherwise directs, the following schedule of attorney‘s fees will be adhered to in fixing such fees for the party recovering any money judgment therein:
ATTORNEY‘S FEES IN AVERAGE CASES
| Contested | Without trial | Non-contested | |
| First $ 2,000 | 25% | 20% | 15% |
| Next $ 3,000 | 20% | 15% | 12.5% |
| Next $ 5,000 | 15% | 12.5% | 10% |
| Over $10,000 | 10% | 7.5% | 5% |
Should no recovery be had, attorney‘s fees for the prevailing party may be fixed by the court in its discretion in a reasonable amount.
Unless the court, in its discretion, otherwise directs, the following schedule of attorney‘s fees will be adhered to in fixing such fees for the party recovering any money judgment therein:
ATTORNEY‘S FEES IN AVERAGE CASES
| Judgment and, if awarded, Prejudgment Interest | Contested | Without trial | Non-contested |
| First $ 25,000 | 20% | 18% | 10% |
| Next $ 75,000 | 10% | 8% | 3% |
| Next $400,000 | 10% | 6% | 2% |
| Over $500,000 | 10% | 2% | 1% |
Should no recovery be had, attorney‘s fees may be fixed by the court in its discretion in a reasonable amount.
| $4,737,524.25 | = | Amount of Stevens judgment (including costs, fees and prejudgment interest). |
| - 750.00 | = | Costs paid. |
| - 50,000.00 | = | Policy face value paid. |
| - 116,897.53 | = | Attorney fees on unpaid judgment as of 10-30-86 (actually paid with interest January 1988). |
| $4,569,876.72 | ||
| +1,569,668.22 | = | 1194 days of prejudgment interest at $1,314.63 per day (10.5% per annum) from Oct. 30, 1986 to Feb. 6, 1990. |
| $6,139,544.94 | = | Verdict before deductions for jury findings re: plaintiff‘s failure to mitigate and for amounts received from settling joint tortfeasors. |
The court shall enter judgment against each party liable on the basis of joint and several liability, except that a party who is allocated less than 50 percent of the total fault allocated to all of the parties may not be jointly liable for more than twice the percentage of fault allocated to that party.
Because of the potential savings to some tortfeasors, funds under this arrangement will be more readily offered to injured plaintiffs than is the case under a covenant to forbear from suit or an outright settlement. Secondarily, loan receipts may tend to simplify complex multiparty litigation, and are desirable from the standpoint of facilitating private resolution of litigation.
Id. 303 N.E.2d at 386. These reasons have been persuasive to a number of other courts faced with LRA‘s between a plaintiff and a co-defendant. See American Transport Co. v. Central Indiana Ry. Co., 255 Ind. 319, 264 N.E.2d 64, 67 (1970); Crocker v. New England Power Co., 348 Mass. 159, 202 N.E.2d 793, 795 (1964); Grillo v. Burke‘s Paint Co., 275 Or. 421, 551 P.2d 449, 452-53 (1976); Jensen v. Beaird, 40 Wash. App. 1, 696 P.2d 612, 618 (1985); cf. Slaughter v. Pennsylvania X-Ray Corp., 638 F.2d 639, 643 (3d Cir.1981) (Penn. law); City of Tucson v. Gallagher, 108 Ariz. 140, 493 P.2d 1197, 1199 (1972); Firestone Tire & Rubber Co. v. Little, 276 Ark. 511, 639 S.W.2d 726, 728 (1982), rev‘d on other grounds sub nom; Shelton v. Firestone Tire & Rubber Co., 281 Ark. 100, 662 S.W.2d 473, 475 (1983); Webb v. Dessert Seed Co., 718 P.2d 1057, 1067 (Colo.1986); General Motors Corp. v. Lahocki, 286 Md. 714, 410 A.2d 1039, 1046 (1980); Barlage v. The Place, Inc., 277 N.W.2d 193, 194-95 (Minn.1979); O‘Howell v. Continental Ins. Co., 654 S.W.2d 308, 308-09 (Mo.App.1983); Hegarty v. Campbell Soup Co., 214 Neb. 716, 335 N.W.2d 758, 764-65 (1983); Bedford School District v. Caron Constr. Co., Inc., 116 N.H. 800, 367 A.2d 1051, 1055 (1976); Corn Exch. Bank v. Tri-State Livestock Auction Co., 368 N.W.2d 596, 599-600 (S.D. 1985); Stein v. American Residential Management, 781 S.W.2d 385, 388-9 (Tex. App.1989); Vermont Union School Dist. No. 21 v. H.P. Cummings Constr. Co., 143 Vt. 416, 469 A.2d 742, 748-50 (1983); Reager v. Anderson, 179 W.Va. 691, 371 S.E.2d 619, 630 (1988).
HT urges us to adopt the reasoning of Justice Schaefer‘s dissent in Reese. Justice Schaefer made a number of arguments against the use of LRA‘s in the plaintiff/co-defendant context. First, he argued that such use undermines the doctrine that prohibits assignment of a cause of action for personal injuries. Second, he attacked the majority‘s policy justifications for the LRA. He argued that the law should not permit one defendant to pay to influence the plaintiff to pursue other defendants. He also denied that the LRA facilitated the private resolution of litigation since it required the plaintiff to pursue the nonsettling defendant. Finally, Justice Schaefer argued that the LRA could throw the entire loss onto the less blameworthy of two defendants. This may happen, according to Justice Schaefer, because the more blameworthy party has more to lose and is thus willing to pay more to secure an LRA from the plaintiff. Reese, 303 N.E.2d at 387-88 (Schaefer, J., dissenting).
We do not find that these points compel a rejection of LRA‘s. As we discuss below, we do not find that the LRA constitutes an illegal assignment. As for the concern about one defendant influencing the plaintiff to sue the others, it would seem that the plaintiff would usually sue the nonsettling defendant regardless of the existence of the LRA. The LRA simply allows the settling defendant to induce the plaintiff not to sue him or her. We also disagree with the objection that the LRA does not facilitate the private resolution of litigation. It is true that the LRA does not eliminate all litigation concerning a case. However, from the viewpoint of the settling defendant, the LRA clearly does pro-
HT nevertheless maintains that the LRA “contracts away” the restriction in
HT attacks the LRA from another angle, arguing that it is inconsistent with the Code of Professional Responsibility and threatens the integrity of the judicial process. HT bases this claim on the realignment of interests created by the LRA. According to HT, the LRA is a collusive agreement which creates a “fertile environment for perjury,” and misleads the jury since the agreeing defendant remains as a captioned defendant and not a “real” defendant.29 We find HT‘s position to be without merit. The concerns were adequately met by allowing HT to disclose the realignment of interests to the jury and by letting the jury evaluate the witness’ credibility.30 See Reese v. Chicago, Burlington & Quincy R.R. Co., 55 Ill. 2d 356, 303 N.E.2d 382, 387 (1973).
Finally, HT attacks the LRA as an illegal assignment of a legal malpractice action. According to HT, the terms and conditions of the loan and the fact that some of the loan funds went to pay expenses associated with the litigation against HT “establish an assignment to Allstate.” We disagree.
According to the terms of the LRA,
[p]ayment on the note is due at the time of and in the full amount of any money received by Phillip Bohna by reason of any claim arising out of or related to the August 21, 1981 automobile accident which injured Anthony Stevens ... including but not limited to the claims asserted against [HT].
At most, this establishes a partial assignment of the proceeds of the malpractice claim against HT, not the cause of action itself.31 Although we have not directly ad-
Having concluded that the LRA is a valid settlement device,32 the next question is whether any part of the loan must be deducted from the judgment against HT. The statute relevant to this issue is
When a release or covenant not to sue or not to enforce judgment is given in good faith to one of two or more persons liable in tort for the same injury or the same wrongful death
(1) it does not discharge any of the other tortfeasors from liability for the injury or wrongful death unless its terms so provide; but it reduces the claim against the others to the extent of any amount stipulated by the release or the covenant, or in the amount of the consideration paid for it, whichever is the greater; and
(2) it discharges the tortfeasor to whom it is given from all liability for contribution to any other tortfeasor.33
(Emphasis added.)
The trial court determined that the portion of the loan which Bohna must repay was not consideration paid for the release given Allstate. We disagree. A loan may be consideration for an exchanged benefit as readily as an unconditional payment. See Credit Alliance Corp. v. Cornelius & Rush Coal Co., 508 F.Supp. 63, 66 (N.D.Ala.1980) (Ala. law) (a loan is consideration for an exchanged benefit). Further, if the loan amount of an LRA is not treated as consideration, the widespread use of LRA‘s will have troubling implications. Neither plaintiffs nor settling defendants would have any incentive not to structure 100% of all settlements as LRA‘s. Such a tactic would result in an undue shifting of losses to nonsettling defendants. There is authority in other jurisdictions which mirrors this view. E.g., Cullen v. Atchinson, Topeka & Santa Fe Ry. Co., 211 Kan. 368, 507 P.2d 353, 362 (1973) (“[A]nything received by way of a covenant not to sue operates as a payment pro tanto upon any judgment obtained against the others.“) (citation omitted); Reager v. Anderson, 179 W.Va. 691, 371 S.E.2d 619, 632 (1988).
We recognize that most jurisdictions deduct no part of the loan amount or only deduct the portion of the loan amount which plaintiffs do not repay. See Webb v. Dessert Seed Co., 718 P.2d 1057, 1067 (Colo.1986); Popovich v. Ram Pipe & Supply Co., 82 Ill. 2d 203, 45 Ill.Dec. 167, 170, 412 N.E.2d 518, 521 (1980); American Transport Co. v. Central Indiana Ry. Co., 255 Ind. 319, 264 N.E.2d 64, 67 (1970); Pacific Indem. Co. v. Thompson-Yaeger, Inc., 258 N.W.2d 762, 765 (Minn.1977); Grillo v. Burke‘s Paint Co., 275 Or. 421, 551 P.2d 449, 454 (1976).34 However, these
4. Interest Calculations.
HT argues that the interest component of the final judgment was incorrectly computed in two ways. First, HT argues that the trial court erroneously compounded post-judgment interest on the pre-judgment interest element of the judgment in favor of Stevens. The Stevens judgment was for $3,000,000 in principal plus $1,619,876.72 in pre-judgment interest plus costs and attorney‘s fees. HT claims that when the trial court calculated the pre-judgment interest on the Bohna judgment against HT, no interest on the $1,619,876.72 component should have been awarded.
This argument is without merit. Pre-judgment interest is an element of compensation. Farnsworth v. Steiner, 638 P.2d 181, 184 (Alaska 1981). When a judgment is entered, pre-judgment interest becomes part of the judgment. After pre-judgment interest is added to the principal amount found by the court or jury,
HT argues that the court erred by continuing to accrue pre-judgment interest on Bohna‘s judgment against HT after October 27, 1989, when Stevens gave Bohna a partial satisfaction of judgment for $4 million. The date of the partial satisfaction is not relevant. If Bohna were a wealthy man and had paid Stevens $4 million of his own funds in exchange for a partial satisfaction, the partial satisfaction of judgment would clearly not signal an end to the accrual of pre-judgment interest on Bohna‘s claim against HT. The fact that the $4 million in this case came from Allstate rather than Bohna does not alter this conclusion. However, independent of the satisfaction, when Bohna received the $4 million from Allstate which reduced Bohna‘s claim against HT by $4 million under
5. Summary of Judgment Calculations.
Although a number of other issues are raised by the parties, none changes the calculation of the judgment. For purpose of clarity, we will set out at this point the calculations required by this opinion.
| $6,139,544.94 | = | Verdict before deductions. |
| - 125,424.64 | = | Interest on $4 million at 10.5% from 10/20/89 to 2/6/90. |
| $6,014,120.30 | = | Verdict adjusted to eliminate pre-judgment interest on $4 million settlement amount paid to Bohna as required by |
| -4,000,000.00 | = | Settlement amount paid Bohna, adjusted as required under |
| $2,014,120.30 | = | Adjusted verdict after interest and settlement deductions. |
| $6,014,120.30 X .80 | = | Adjusted verdict after interest deduction multiplied by twice the total fault allocated to HT. |
| $4,811,296.20 | = | (The “cap” formula of |
Since the amount of the verdict resulting from application of the “cap” formula is more than the adjusted verdict under
B. OTHER ISSUES RAISED BY BOHNA
1. Punitive Damages.
Bohna argues that the trial court prejudiced his claim for punitive damages38 by granting partial summary judgment to HT on the issue of fiduciary fraud. The trial court ruled that Bohna‘s complaint failed to allege fiduciary fraud with the specificity required by
Our review of the record leads us to conclude that Bohna probably suffered no prejudice because of the trial court‘s rulings concerning his fiduciary fraud punitive damages claim. The trial court instructed the jury that punitive damages could be awarded if it found HT‘s conduct to be “outrageous because of [HT‘s] evil motives toward the plaintiff or its reckless indifference to his rights.” Bohna was permitted to present evidence relating to an attorney‘s fiduciary duties to his client. At final argument he urged the jury to make an award of punitive damages against HT because HT had been loyal to Allstate at Bohna‘s expense and thus was recklessly indifferent to his rights. We conclude therefore that even if the trial court erred in its rulings concerning Bohna‘s claim for fiduciary fraud, such error was harmless.
C. ADDITIONAL CLAIMS RAISED BY HT
1. Assignment of the Cause of Action Against HT to Stevens.
In a motion for summary judgment, HT challenged the agreement between Stevens and Bohna, contending that it constituted an impermissible assignment of Bohna‘s malpractice claim against HT. After considering case law from Alaska and other jurisdictions, the trial court concluded that “[o]n its face, the assignment is for more than the proceeds from the recovery in this case [and thus] the assignment is invalid on its face.” The court, however, did not dismiss Bohna‘s claim for malpractice against HT.
HT argues that Bohna‘s malpractice claim against HT should have been dismissed because Bohna illegally assigned his cause of action to Stevens.40 We disagree. Assuming that the Stevens-Bohna agreement constituted an assignment, it was held invalid by the trial court. Therefore, Bohna retained his cause of action against HT and proceeded to enforce it.
2. Motion for Directed Verdict.
At the close of Bohna‘s case-in-chief, HT moved for a directed verdict, claiming that Bohna‘s experts had failed to establish the standard of care by which the jury was supposed to judge HT‘s actions. The motion was denied. HT argues that the denial
When reviewing the denial of a motion for directed verdict we do not weigh conflicting evidence or judge the credibility of the witness; rather, we determine whether the evidence, when viewed in the light most favorable to the non-moving party, is such that reasonable people could not differ in their judgment. If there is room for diversity of opinion among reasonable people, the question is properly for the jury. Petersen v. Mutual Life Ins. Co., 803 P.2d 406, 410 (Alaska 1990).
In Drake v. Wickwire, 795 P.2d 195 (Alaska 1990), we held that expert evidence is required “to establish a breach of an attorney‘s duty of care, except in non-technical situations where negligence is evident to lay people or where the fault is so clear as to constitute negligence as a matter of law.” Id. at 196. Such evidence was presented in this case. Leroy Barker, an insurance defense specialist called by HT, admitted on cross-examination that “[a] defense attorney who exposed his own client to an excess judgment when he could have used insurance company money to settle the case wouldn‘t [meet] the standard of care of [the] community.” Based on this evidence, reasonable jurors could have concluded that HT breached the duty of care it owed to Bohna.41 Thus, the trial court properly denied HT‘s motion for a directed verdict.42
3. Peremptory Challenges.
HT requests a new trial because it was granted the same number of peremptory challenges as were given Bohna and Allstate considered separately. HT argues that Bohna and Allstate did not have adverse interests, and hence under
Each party may challenge peremptorily three jurors. Two or more parties on the same side are considered a single party for purposes of peremptory challenge, but where multiple parties having adverse interests are aligned on the same side, three peremptory challenges shall be allowed to each such party represented by a different attorney.
By ruling that Bohna, Allstate, and HT would each be allowed four peremptory challenges,44 the trial court implicitly deter-
We do not believe that the interests of Bohna and Allstate were truly adverse. Allstate‘s liability to Bohna had been extinguished by the settlement agreement. By virtue of the LRA, both were interested in seeing the jury return a large verdict against HT. Allstate wanted a large verdict because the larger the verdict, the more likely it would recover fully on its loan. Bohna wanted a large verdict because he was obligated to pay Allstate only the loan principal plus interest. Given a sufficiently large verdict (with punitive damages, for example), he would be able to satisfy completely the Stevens judgment and keep any excess. Thus, the trial court‘s finding that Bohna and Allstate had adverse interests was clearly erroneous.
Bohna nevertheless maintains that HT must show that it was prejudiced by the court‘s erroneous award of peremptory challenges in order to justify reversal. HT responds that a requirement of prejudice in this context is senseless because peremptory challenges allow a party to remove a prospective juror for “intuitive and often unexplainable reasons.” Thus, to require a showing of prejudice would in effect nullify
There is no Alaska case law on whether a showing of prejudice should be required in order to obtain a new trial when one party is allowed too many peremptory challenges. However, under our harmless error rule, only errors which are “inconsistent with substantial justice” are grounds for granting a new trial.
The cases in other jurisdictions are divided on whether a showing of prejudice is required to warrant a new trial when excessive peremptory challenges are awarded to a litigant or to multiple litigants having the same interest. See Effect of Allowing Excessive Number of Peremptory Challenges, 95 A.L.R.2d. 957 (1970). The majority rule seems to be that some showing of prejudice is required:
The numerical weight of authority in civil cases supports the rule that a judgment will not be reversed for error in allowing one or more peremptory challenges in excess of that provided by statute, unless the complaining party shows that he has exhausted his peremptory challenges and has suffered material injury from the action of the court, and that as a result thereof one or more objectionable jurors sat on the case, or for some other equally cogent reasons.
Id. at 963. For the reasons that follow, we align Alaska with this view.
An impartial jury is fundamental to the American tradition of trial by jury. Peremptory challenges are thus not for the purpose of securing a jury biased for one‘s side or against the opponent‘s side. On the contrary, a primary purpose of peremptory challenges is to help secure an impartial jury. They permit each party to reject certain prospective jurors whom they believe, but cannot demonstrate, harbor some latent predisposition against their position or for the opponent‘s position.
Peremptory challenges are thus not an end in themselves, but rather a means to an end: an impartial jury. Where a party
4. Satisfaction of Judgment.
On November 10, 1987, Bohna and Stevens agreed that Stevens would enter into a covenant not to execute upon the judgment against Bohna pending the outcome of the action against HT. In turn, Bohna agreed that he would, among other things, diligently pursue his claims against Allstate and HT. Stevens’ partial covenant not to execute was superseded by a permanent covenant not to execute dated October 27, 1989. In the latter document, Stevens covenanted not to execute upon the judgment against Bohna except to the extent that Bohna obtained a recovery against HT.49
Citing the covenant not to execute, HT urges this court to reverse the judgment and dismiss Bohna‘s cause of action. HT‘s theory is that, because of the covenant not to execute, Bohna did not suffer a loss sufficient to permit him to maintain suit against HT. The terms of the covenant fail to support this claim. The proceeds from Bohna‘s lawsuit were explicitly left subject to execution. By the terms of the November 10 agreement, Bohna was required to pursue diligently his cause of action against HT. Failure to do so would have been a material breach of the agreement. In such a case, Bohna would no longer be able to assert the covenant not to execute in order to bar Stevens from executing on the judgment against Bohna. Because of this vulnerability to execution on the Stevens judgment, Bohna retained the element of loss despite the covenant not to execute. Cf. Continental Ins. Co. v. Bayless & Roberts, Inc., 608 P.2d 281 (Alaska 1980) (no plain error under similar circumstances).
5. Evidentiary Points.
HT lists as error various rulings by the trial court excluding the presentation of
The first point raised by HT is the trial court‘s refusal to allow the expert testimony of Kenneth Treadwell, a former bankruptcy judge, on the issue of the dischargeability of Bohna‘s excess judgment in bankruptcy. The court determined that, at the time Powell proposed the excess offer strategy, whether or not Bohna could discharge the judgment in bankruptcy was legally uncertain. The court viewed the question facing the jury as: Given that contingency, what would a reasonable, prudent attorney do under those circumstances?
HT claims that it may have been prejudiced by this ruling because “there is no way of knowing the relation between the jury‘s finding of negligence and Hughes Thorsness’ advice to Bohna on the contingency of non-dischargeability.” As it happens, examining the special verdict form provides an easy way to determine this. Answering Question 1, the jury found that HT was negligent. However, Question 3 specifically asked if HT was negligent in making excess offers of judgment. The jury answered “No.” Instead, the jury indicated in its answer to Question 6 that HT was negligent for reasons other than making excess offers of judgment. Given these findings, we see no manner in which HT may have been harmed by the court‘s
Next, HT contends that the trial court erred by refusing to allow HT to introduce evidence of Bohna‘s blood alcohol level at the time of the collision or any similar evidence regarding Stevens. According to HT, the excluded evidence “went to the heart of the question of negligence.” Yet HT fails to explain how any of this evidence, if introduced, might have affected the jury‘s finding that HT was negligent in ways other than making excess offers of judgment. HT vaguely claims that “[t]he jury was prevented from assessing the full factual basis from which Hughes Thorsness acted.” This still does not identify the manner in which HT was prejudiced. Thus, we cannot say that we are left with a definite and firm conviction that the trial court erred.
Finally, HT assigns as error the trial court‘s refusal to allow into evidence Bohna‘s opposition to a motion made by Allstate, pursuant to
HT‘s demand for a new trial on the ground that it was denied the opportunity to introduce evidence of Bohna‘s opposition to Allstate‘s
6. Jury Instructions Regarding Attorney Conduct.
HT argues that it is entitled to a new trial because the trial court refused to give the jury certain proposed instructions concerning attorney malpractice. Specifically, HT wanted the trial court to: first, instruct the jury that an attorney‘s conduct cannot be judged by subsequent case law and that an attorney must be judged under circumstances similar to those existing at the time of the conduct; and, second, provide the jury with proposed clarifying instructions. In light of the trial court‘s actual instructions and because the issue of whether an attorney‘s conduct should be judged by subsequent case law was not raised before the jury, we hold that the trial court did not err by refusing to provide the jury with HT‘s proposed instructions.
On the issue of attorney negligence, the trial court‘s instruction provided in part:
An attorney is negligent in the representation of a client if he breaches the required standard of care by failing to use such skill, prudence, and diligence as other attorneys commonly possess and would exercise under similar circumstances....
An attorney is not necessarily negligent because he makes errors in judgment or because his efforts are unsuccessful. An attorney is negligent if the error in judgment or lack of success is due to his failure to use such skill, prudence and diligence as other attorneys commonly possess and would exercise under similar circumstances.
(Emphasis added.) During HT‘s presentation of its case, HT‘s expert witness testified that the required standard of care for an attorney is to analyze “the law that is in existence at that time ... [and] to exercise the diligence, skill, competence, prudence of a lawyer who is in similar practice here in Anchorage.”52 (Emphasis added.) HT did not cite to any instances where either Bohna or Allstate offered evidence that an attorney should be judged by subsequent case law. Thus, there was no need for the trial court to give the jury HT‘s proposed instruction on attorney negligence because the issue of whether HT should be judged by subsequent case law was never presented to the jury.
As mentioned, HT also claims that the trial court erred by not providing the jury with proposed clarifying instructions. HT argues that because the trial court instructed the jury that it had ruled that Allstate had breached its duty of care to Bohna, the jury may have been confused into thinking that the trial court‘s ruling applied to HT as well.53 HT claims it was further prejudiced from instances of opposing counsel eliciting testimony which allegedly suggested that HT was at fault for
On the issue of duty, the trial court‘s instruction provided in part:
The court has ruled in this case that Allstate had certain duties to Bohna in this case and that it breached those duties. The court‘s rulings are based upon the policy language and the law which interprets those duties....
These rulings of the court regarding Allstate, however, do not establish any duties owed by [HT] to Phillip Bohna. The duties owed by [HT] to Bohna are established by the expert testimony which you have heard in this case. The jury must evaluate and weigh the expert testimony to decide first what duties were owed by [HT]; secondly, which, if any, of those duties were breached; and thirdly, whether those breaches legally caused loss to Bohna.
(Emphasis added.) The trial court further instructed the jury:
The insurance policy issued to Bohna provided coverage which had a dollar value to him. This dollar value is called “policy limits.”
It is the duty of an insurance company to determine the dollar value of its policy limits. No one else has the duty to determine the dollar value of the policy limits for an insurance company.
(Underline in original, italics added.) These instructions clearly informed the jury that the trial court‘s ruling as to Allstate‘s breach of duty did not apply to HT, and that HT was not responsible for determining the value of policy limits nor making a policy limits offer.54 As such, they were highly favorable to HT, since Allstate contended that it was relying on HT to advise it as to what policy limits would be given the uniqueness of Alaska law regarding court awarded attorney‘s fees.
Moreover, the instructions proposed by HT would not have substantially clarified any confusion which may have existed. HT‘s proposed Instruction 8 would have advised the jury that an attorney “is not liable for being in error as to a question of law on which reasonable doubt may be entertained by well-informed lawyers,” and that, prior to 1988, “rational disagreement was possible as to what comprised a tender of policy limits.” This adds little if anything to the trial court‘s actual instruction which informed the jury that “[n]o one [besides the insurance company] has the duty to determine the dollar value of the policy limits for an insurance company.” As for HT‘s other proposed instructions, they would not have aided HT in this regard.55 We therefore conclude that the trial court did not err in denying HT‘s proposed clarifying instructions.
7. Costs and Attorney‘s Fees Awarded to Bohna.
After trial, Bohna moved for costs and attorney‘s fees. The trial court awarded Bohna $34,454.47 in costs and $92,700.00 in attorney‘s fees. HT claims that this was a double recovery because of the way in which part of the $4 million paid by Allstate was allocated: $250,000 was dedicated to a litigation fund out of which the litigation against HT was financed, while a total of $625,000 went directly to Bohna‘s attorneys. Thus, according to HT, the court awarded costs and fees constituted a double recovery.
The award of costs and attorney‘s fees is committed to the broad discretion of the trial court. We will not find an abuse of that discretion absent a showing that the award was “arbitrary, capricious, manifest-
This case involves a private contract which funded the litigation for which costs and fees were ultimately awarded. The question is whether such a contract should affect the award of costs and fees. We have said that
D. ALLSTATE INSURANCE COMPANY V. HUGHES THORSNESS
Prior to settling with Bohna, Allstate filed a cross-claim seeking indemnity from HT if Allstate were found liable to Bohna as a result of HT‘s actions. Allstate later sought indemnity for the $1 million it paid under the settlement agreement. We now turn to the issues arising out of Allstate‘s indemnity claim.
1.
In a pre-trial hearing, the trial court determined that in order for Allstate to recover on its indemnity claim, Allstate had to be found fault free by the jury. The trial court made this determination based on our decision in Vertecs Corp. v. Reichhold Chems., Inc., 661 P.2d 619, 626 (Alaska 1983), where we held that implied indem-
Allstate maintains that the Vertecs rule does not apply to claims of implied contractual indemnity. HT argues to the contrary. However, when the parties filed their briefs, they did not have the benefit of our opinion on rehearing in Fairbanks North Star Borough v. Kandik Construction, Inc., 823 P.2d 632 (Alaska 1991). There we vacated that part of the original Kandik opinion which left undecided the applicability of comparative fault principles to implied contractual indemnity claims. We squarely held that the Vertecs rule applies in such cases. In other words, we held that a defendant cannot recover on an implied contractual indemnity claim unless he or she is completely fault free with respect to the underlying damages for which indemnity is sought. Kandik, 823 P.2d at 638. Thus, the trial court was correct in ruling that Allstate‘s indemnity claim was barred if Allstate were found to be responsible in part for Bohna‘s damages.
2.
By a pre-trial order dated August 15, 1988, the trial court set January 13, 1989, as the deadline for filing motions to amend the pleadings. With HT‘s consent, Allstate amended its answer to assert its initial cross-claim after this deadline. Allstate and Bohna eventually settled on October 19, 1989. On October 26, 1989, less than one month before the start of trial, Allstate sought leave to amend its cross-claim to assert direct causes of action against HT. The proposed amended cross-claim would have added claims for breach of a lawyer‘s duty to a client, breach of contract, and breach of an agent‘s duty to a principal. The trial court denied Allstate‘s motion to amend as untimely and prejudicial.
Allstate argues that the trial court abused its discretion56 because Allstate‘s direct claims did not accrue until Allstate had suffered “actual damage” by settling with Bohna. Allstate also maintains that HT was not surprised or in any way prejudiced by the assertion of these direct causes of action.
3.
Allstate next contends that the issue of whether it breached its implied covenant of good faith and fair dealing should have been allowed to go to the jury. Instead, the trial court ruled, as a matter of law, that Allstate had breached its covenant of good faith and fair dealing by 1) using excess offers of judgment in order to calculate
As we recently recognized, where an adverse verdict in excess of policy limits is likely, an insurance company has the duty to determine “the amount of a money judgment which might be rendered against its insured,” and “to tender in settlement that portion of the projected money judgment which [it] contractually agreed to pay.” Schultz v. Travelers Indem. Co., 754 P.2d 265 (Alaska 1988) (per curiam). This duty required Allstate to offer Stevens a quantifiable dollar amount representing Allstate‘s obligation under the policy. See Providence Washington Ins. Co. v. Fireman‘s Fund Ins. Cos., 778 P.2d 200 (Alaska 1989).58 On September 16, 1986, in a letter to Allstate, Powell estimated that the verdict value of the case to be no less than $3 million. Using the “contested without trial” portion of the Rule 82 table, Powell estimated that Allstate‘s obligation under the policy was no less than $162,680 plus costs.59 Yet Allstate never offered Stevens a specific dollar amount of more than $50,000. Thus, the trial court was correct in ruling that, as a matter of law, Allstate breached its obligation of good faith and fair dealing.60
CONCLUSION
Entry of judgment in Bohna‘s favor was proper. However, the value of the jury
On Allstate‘s cross-claim, the judgment in favor of HT is affirmed.
AFFIRMED in part, REVERSED in part, and REMANDED.
COMPTON, J., concurs.
BURKE, J., not participating.
COMPTON, Justice, concurring.
The court concludes that the $3,000,000 “loan” provided for in the Loan Receipt Agreement (LRA) used by Allstate Insurance Company is “consideration” within the meaning of
WARREN W. MATTHEWS
JUSTICE
A tortfeasor who enters into a settlement with a claimant is not entitled to recover contribution from another tortfeasor whose liability for the injury or wrongful death is not extinguished by the settlement nor in respect to any amount paid in a settlement which is in excess of what was reasonable.
In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
HT also disputes the trial court‘s denial of HT‘s motion for a new trial. However, upon reviewing the entire record, we cannot say that the “evidence to support the verdict was completely lacking or was so slight and unconvinc- ing as to make the verdict plainly unreasonable and unjust.” Sloan v. Atlantic Richfield Co., 541 P.2d 717, 724 (Alaska 1975) (quoting Ahlstrom v. Cummings, 388 P.2d 261, 262 (Alaska 1964)). Indeed, for us to reach that conclusion, we would have to discount the testimony of Barker, a witness called by HT.
No error in either the admission or the exclusion of evidence and no error or defect in any ruling or order or in anything done or omitted by the court or by any of the parties is ground for granting a new trial or for setting aside a verdict or for vacating, modifying or otherwise disturbing a judgment or order, unless refusal to take such action appears to the court inconsistent with substantial justice. The court at every stage of the proceeding must disregard any error or defect in the proceeding which does not affect the substantial rights of the parties.
728 F.2d at 38.[t]here is nothing to show either that [the complaining party] was dissatisfied with any of the jurors finally selected or wished to select someone else. We think that before a reversal is granted, the complaining party should be able to point to some convincing indication in the record that if a further peremptory challenge had been allowed, he meant to challenge one or more jurors.
COVENANT NOT TO EXECUTE
I, Anthony Stevens, hereby covenant not to execute upon the judgment which I have obtained against Phillip Bohna in the case of [Stevens v. Bohna] except:
1. To the extent that Phillip Bohna obtains a recovery against Hughes, Thorsness, Gantz and Brundin in the case entitled [Bohna v. Hughes Thorsness ].
This [supersedes] my previous partial covenant not to execute upon Mr. Bohna in which I agreed not to execute during only the pendency of [Bohna v. Hughes Thorsness ]. By this covenant, I agree not to execute on any assets of Mr. Bohna, except proceeds from the above lawsuit, forever.