Western Fiberglass, Inc. v. Kirton, McConkie & Bushnell

FIBERGLASS, INC., a Utah WESTERN Plaintiff, Appellant,

corporation, Cross-Respondent, BUSHNELL, KIRTON, AND McCONKIE Defendant, professional corporation, Cross-Appellant. Respondent, and No. 890407-CA. Appeals of Utah. Court of March Fox, ap-

Joseph Sandy, plaintiff, R. pellant cross-respondent. Nebeker, Kay, L. Stephen B. Thomas Newman, City, D. Salt Lake for defen- Paul dant, respondent cross-appellant. BILLINGS, DAVIDSON, Before JACKSON, JJ.

JACKSON, Judge: (Western) ap- Inc. Fiberglass, peals jury on a verdict judgment based equally negligent which found security failing to file instruments. The Kirton, and Bushnell law firm of McConkie (Kirton) cross-appeals the denial of costs corporate in- and fees claimed under the demnity provision of the Business Utah Code Ann. 16-10-4(2)(c) (Supp.1989). We affirm on appeals. both THE CASE I. NATURE OF claiming damages Western sued Kirton legal malpractice arising out of for Kirton’s equipment to Fi- sale of United (United). alleged berglass, Inc. negligence: attorney claims of two perfect security Kirton failed to accounts receivable interest United’s benefit. for Western’s appellant Kirton failed to inform Western that people that reasonable would right repossess equip-

Western’s the differ on the outcome the case.” Cam on subject ment United’s default was Corp. Dalton, belt Int’l v. 745 P.2d prior the liens of Bank. Sovran (Utah 1987) (quoting E.A. Strout W. Realty Agency, Sons, v. Foy Inc. W.C. & contributory Kirton raised Western’s Inc., (Utah 1983)). 665 P.2d Ab negligence as a defense both claims. circumstance, sent such a Further, requested Kirton indemnification for its costs and fees under section 16-10- appellant the on burden an to establish 4(2)(c). that the support evidence does not the jury’s findings verdict and the factual respective claims, except in- Kirton’s implicit quite in that claim, heavy. verdict ... is demnification were submitted the light consider the jury special evidence the jury on verdict forms. The verdict, most equally negligent found the on the favorable to and we will accounts receivable claim. The jury appeal sup- found overturn it on when it is performed duty Kirton had regarding ported by its competent substantial and evi- equipment claim. The trial court de- dence. application nied Kirton’s for indemnifica- Cambelt, 745 P.2d at (citing Von tion of costs and fees under Utah Busi- Thomas, Hake v. 705 P.2d ness Act. 1985)). Furthermore, successfully at- verdict, appellant tack the an must marshal II. THE DIRECT APPEAL all supporting the evidence the verdict and Western identifies principal issue on that, then demonstrate viewing even appeal to be jury’s finding “whether the the light evidence in most favorable to that plaintiff negligent that the was was 50% verdict, is sup- the evidence insufficient to proper?” challenge Western’s is to the port it. Id. findings underlying fact the judgment concerning Western’s brief is silent that it was contributorily negligent.2 “The proper standard of review. Since general, universal, although not is rule standard, ignored Western its brief contributory negligence an affirmative failed to marshal the evidence per which which alleged defense must be and estab- jury’s finding tains to the that was 50% by the attorney, and which almost Instead, negligent.3 merely always presents question for the trier presented the supporting evidence fact.” Mallen Smith & 17.2. § finding jury’s negli that Kirton was 50% Our standard of review for this gent claimed no there was evidence challenge is well settled. Resolution contributorily negligent. that Western was dispute factual is a for jury matter as fact, trier of unless evidence on the issue Kirton realized that standard review is clearly “so preponderates in consequence favor some at- appeal challenged, 1. Although argued Western has not as lawyers, a matter of some have law, availability fiduciaries, of the defense of contrib urge should not be able to contrib- utory negligence legal malpractice in a action. defense, utory negligence as a all courts challenge is that there is no evidence which have considered the issue have either negligent negligence that Western was or that its directly implicitly held the defense avail- causally injury connected to the dam legal malpractice able ain action. Thus, age argues, suffered. the evi Smith, Legal Malpractice R. & J. Mallen 17.2 § support finding dence does not contrib (3d ed.1989) (hereinafter Smith). & Mallen negligence. utory excep Western did not take jury special tion instructions nor the 3. Forthcoming appellate amendments to our question verdict form which submitted the require parties applicable rules will to “state the contributory negligence jury. to the See Accu appellate supporting standard review cite Peterson, log, Inc. 692 P.2d 728 authority” docketing for each issue raised 9(c), R.App.P. statements briefs. 1, 1990). Contributory negligence ais (effective April against plaintiff attorney malpractice suit. damages, recover 78-27-38 To proper standard

tempted identify the negligence greater must incorrectly identi- But Kirton defendant’s this issue. Otherwise, neg- plaintiff’s not be plaintiff’s. “the verdict will fied than the standard support any complete ligence if there is reasonable is a defense. disturbed Nevertheless, has Kirton in the evidence.” grouses the also about exclu- Western the supporting the marshaled evidence evidence, which we of certain an issue sion negli- jury’s finding that Western was 50% to without merit. deem be of the half gent, performing first thus Western’s task. III. THE CROSS-APPEAL following con- the evidence revealed post-trial a motion for Kirton filed subordinated by duct Western. Western pursuant fees to of its costs and payment in United’s accounts security interest its. 16-10-4(2)(c) Business Utah security inter- to Sovran Bank’s receivable pro Corporation Act. That subsection on its Bank foreclosed est. When Sovran accounts, vides: they interest in the security the the amount owed amounted to less than (c) director, To a offi- the extent that keep fully Kirton Western did not

Bank. cer, agent employee, or of a negotia- about the in and informed involved the merits or has been successful on the United transac- closing tions and action, any suit otherwise in defense of repre- to tion. Kirton advised Western be proceeding referred to in Subsection or the during closing the by sented counsel claim, (2)(a) (b), or in everything to was deal make sure United issue, therein, in- or matter he shall be that disregarded properly. done Western against expenses, including at- demnified independent legal failed advice and to fees, torneys’ actually rea- which he and representation closing. the Western sonably incurred in connection therewith. proceeded to the deal on its own finalize motion. The trial court denied the complete counsel to and relied United’s below, a motion but did not file opposed the result, fi- the paperwork. As merely op- reply cross-appeal, brief on not and its nancing statements were filed argument. the at oral Kirton’s posed issue security interest in the accounts receivable subparts: the issue in two discusses brief perfected. was not (1) agents are entitled to indemnification to demon- appeal, On failed (2) they prevail; matter of law when insuf- foregoing how the evidence is strate agent Kirton of Western and support finding it was ficient to the that the to We think entitled indemnification. we equally negligent Kirton. When order, should be examined inverse issues light view evidence in the most favor- that “agent” if Kirton was not an with- because verdict, the able we find verdict statute, analysis meaning in the supported by competent ev- substantial us, Unfortunately for Kirton’s brief ends. idence. pages than two to the mean- devoted less “agent” Corpo- in the Business ing Utah Both have claimed error Further, damages finding Kirton directed us to jury’s ration Act. calculation of unpublished one case4 and the Re- just substantial Western suffered (Second) Agency damages. Western claims statement amount sta- support Kirton its claim amount was low. claims ruling did not claim that the law firm high. too Due our tus. Kirton amount was above, attorney advising Western was a need not reach the issue of we director, or'employee corpo- damages. The 50/50 correct amount of it, merely not need for ration. Kirton claims negligence findings obviate the amount, assigned attorney, noth- was Western’s whatever the review because stated, “I ing “agent.” Ann. The trial court do can be awarded. See Code (ordered Inc., 1987) officially published, Katayama Properties, Rule Interpacific Ct.) Cal.Rptr. (Ct.App. Cal. Cal.App.3d Rules of argument put forth the de- who were in a believe the directors vindicated deriv- innocent, legislature Though had in mind fendant is what ative suit. were regards pay indemnification of forced their own substantial attor- meaning forth.” The or neys officers and so corpo- fees because no benefit to the statute, i.e., construction of what apparent. ration was That decision mind, legislature presents question had adoption of prompted the first indemnifica- Centre, Ltd., of law. v. Fashion Berube tion statutes. See Control Cor- 1989), Asay 771 P.2d v. porate Proposed Indemnification: Watkins, 751 P.2d 1135 On Statute, 22 Vand.L.Rev. 258-262 review, accord conclusions of law no deference, particular but review them for vary The indemnification in statutes con- Corp., correctness. 700 BMG tent, Scharf can but be classified into two cate- 1068, P.2d 1070 free are gories, permissive “enabling” or stat- reappraise to trial conclu- legal court’s utes, give power corporation which to Berube, sions. 771 P.2d at The indemnify its officers and directors un- us, question of before precisely law more circumstances, der certain and mandato- stated, is: the word Does ry “right” statutes, give or which corporate provision of our indemnification right director an or enforceable to statute include a law firm engaged statutory indemnification when stan- corporation render to advice concern- dards of conduct are met. corporate ing equipment? a sale of Barrett, Mandatory Indemnification The provisions, Utah indemnification Directors, Corporate and 29 Sw. Officers 16-10-4, found in section were substantial (1975). 727 L.J. 1987, ly pub in amended and there are no Delaware’s statute was revised exten- appellate opinions interpreting their sively in 1967 prototype and has been the scope. engage meaningful in For us to subsequent for the model acts. Comments analysis of the Utah indemnification stat to the Model Business ute, we must examine the of the history 1, 1969, July revised state: problem.5 Early judicial indemnification principle The is to basic involved what adopted decisions rationales as follows: extent and under what circumstances The corporate unsuccessful who officials should funds be used to reim- were negligence held liable for guilty or directors, employees burse officers and performance misconduct in could duties expenses defending incurred in for them- not obtain for ex litigation reimbursement against personal upon selves attacks penses acting because were not their acts. official the benefit the corporation. Officials Corp. para. Model Bus. Act Ann. 2d 5 who were successful in ac defending their added). (emphasis Barrett re- split judicial tions caused a opinion. legis- searched the revision commission Some courts held reimbursement was not 145(c) background lative of the section improper unjust. or Others looked for ben law, which at efit Delaware that time was sim- protection corporation to or present 16-10-4(2)(c). ilar grounds to our for reimbursement. refused Some Barrett, theory 29 Sw. L.J. at 733. Subsection reimburse on action See (c), mandatory indemnification, illegal beyond authority. pivot was enact- The primarily protect al New ed decision was York Co. v. vindicated officers Dock 106, McCollum, indemnify 173 Misc. 844 and from a N.Y.S.2d directors refusal to (Sup.Ct.1939), management which denied indemnification shift in when an adverse oc- Cheek, surveyed Corporate 5. We have for the commentators since 1960. Control Indem- Statute, public policy prompted legislatures Proposed state 22 Vand.L.Rev. nification: (1969). indemnify corporate agents begin- only officers and As of Idaho and 256 n. ning Hampshire in New York 1941. As of sixteen New had no indemnification stat- Barrett, statutory authority Mandatory states had for indemnifica- utes. Indemnification of Directors, As Corporate tion of directors. such Sw. states had L.J. Ill Officers provisions (1975). legislation had reformed their liability and of the The fear of However, Delaware statute curred. top people to that situation. as directors is application inability to attract not limit does however; longer present; Barrett concluded: fear no still arising from bad business 145(c) upon who suits an insider based under section compel- on a wholly partially due to other more conditions but is been successful re- may factors, demand ling technical such as increased hazards indemnification, including legal ceive antitrust and securi- liability under federal fees, notwithstanding the standards interpretation judicial strict ties laws and if (b) met (a) that must be conduct liability. executive of the standards of indemnify. chooses at 22 Vand.L.Rev. 256-57. underlying policy for the enactment An legis- foregoing survey reveals that provision of an indemnification favorable stat- implemented indemnity latures have attract management was desire capable corporations can attract utes so of Delaware. for the state incorporators executives, competent at- management added). (emphasis at 733 Id. designed The statutes are torneys law. nutshell, judgment is legislative In a corporate dis- protect persons exercising necessary indemnity protection is attorneys authority,6 not the cretion of encourage recruitment desirable ad- persons give hire to them those Exp. v. capable management. Wisener Air public policy Based on considera- vice. Cir.1978). 579, (2d Corp., F.2d 583 Intl. tions, conclude that Kirton was a indemnity, be further-justification for corporate meaning of “agent” within the enhancing quality corporate of yond the statute. encourage to allow and management, is The Utah Business agents pursue on of the activities behalf -143, Ann. 16-10-1 to Utah Code §§ by fear in a manner unfettered originally adopted in 1961. 16-10- Section good taking of faith risks search Definitions, agent.7 define The does not Maskowitz, profits. Irenas & Indemnifi places other agent appears three word Agents, and Corporate Officers, cation of provision. Section than the indemnification Poli Statutory Mandates and Directors: 16-10-45, officers, provides for the election Limitations, Legis. cy 7 Seton Hall J. a law- example, agent corpora- circumstances of a that "at least under some 6. For no officer yer 'agent' authority under estab- would be treated as tion to bind the firm in a real Heylar agency rules." at 1256. Henn a is estate deal without board resolution. This Heyler’s and state: corporate secretary/treasurer and Alexander note comment true even who, aof known, commonly ordinarily a it is is not unfortunate, "agent” be- Use of the term is corporation. principal who a Fos- binds possible agency of law cause of connotations Heights Corp., ter P.2d v. Blake judges, growing number of unfamiliar to 1975). lawyers Apart statu- law students. from aberrations, tory directors are and decisional authority attorneys corpora- The of to bind agents corporate other and officers and precisely is the same in the case of tion as [agents] only so, personnel are to the extent that persons. do natural Unless authorized to corporation. power have to bind the corporation’s attorney by bind cannot it & at 1140 n. 94. Henn Alexander beyond scope em- contract or act of his persons are in- Barrett refers to those who power ployment, his is re- and when act “management personnel” and authority demnified his ceases. voked Barrett, Fletcher, See Sw. L.J. "successful executives." Cyclopedia W. the Law Private of nn. Cheek identifies the also Corporations con- indemnified as executives: "This only only aspect anxiety 7. We found two commentators who cern ... one of broader [is] "agent” meaning judicial increasingly interpreta- in an indem- considered strict over the Heylar, liability. nification statute. executive tion of the standards of Indemnification of Corporate Agents, 23 L. worry multiplied U.C.L.A. Rev. is when one considers the un- (1976) (hereinafter Heylar); precedented H. Henn & J. Alex- of suits increase in number ander, Corporations against Laws and Other Business filed 22 Vand.L. executives.” (3d 1983) (hereinafter Enterprises Alexander). & ed. Henn and Cheek’s Rev. at 657. think Barrett’s i.e., Heyler correct, “agents” brief. Both comments are characterizations are are paragraph management personnel to the idea and concludes and executives of the devotes corporation. that under the California statute would seem by directors, ing any type then agency relationship of officers board states, corporation. emphasis with our added: agents corpora-

all judgment is affirmed. officers tion, as between themselves and the cor- J., DAVIDSON, poration, authority shall have such concurs.

perform in the management such duties BILLINGS, Judge (concurring): provided corporation may I concur with majority opinion, ex- bylaws, may or as be determined cept concerning for section III cross-ap- resolutions the board of directors not peal, only. in which I concur in result bylaws. inconsistent with the This section reveals that officers and persons possessing manage- are authority corporation.

ment Their grant authority provided by of corporate bylaw or board resolution. Kirton has not management authority

claimed from West- ern, only that Kirton was retained to act Utah, STATE Plaintiff and behalf, subject con- to Western’s Respondent, is, exercising trol. That Kirton was not any corporate authority discretion or but was under the offi- direction Western’s LOPEZ, Jr., Juan Jose Defendant agents. pointed cers and Kirton has not Appellant. any bylaw empowering or resolution No. 890324-CA. corporate management authority at West- ern. Appeals Court Utah. Section 16-10-46 also addresses March “agent” terms “officer” tandem: appointment “Election or of an agent shall not of itself create contract

rights.” added). (Emphasis Finally, the

section of the setting statute forth general powers gives authority to a “to or appoint elect officers

corporation, define their duties and fix compensation.” their Utah Code Ann. 16-10-4(l)(k) (emphasis (Supp.1989) add- ed). recurring combination the words

“officer” and in the statute indi- persons operating equal footing cates management authority the corpora- Thus, tion. provi- when we arrive question, 16-10-4(2)(c), sion in “director, officer, find the words employee agent” combined, conclude that synonymous underlying meanings. statute concerned' with personnel management who exercise dis-

cretion authority and who have to bind the

corporation, not someone like Kirton hav-

Case Details

Case Name: Western Fiberglass, Inc. v. Kirton, McConkie & Bushnell

Court Name: Court of Appeals of Utah

Date Published: Mar 2, 1990

Citation: 789 P.2d 34

Docket Number: 890407-CA

Court Abbreviation: Utah Ct. App.