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08/07/91 DAVID O. DALO AND D-DEVELOPERS v. MURRAY

August 7, 1991

DAVID O. DALO AND D-DEVELOPERS, INC., APPELLANTS
v.
MURRAY A. KIVITZ, ET AL., APPELLEES



Appeal from the Superior Court of the District of Columbia; Hon. Harriett R. Taylor, Trial Judge

Ferren, Terry and Farrell, Associate Judges.

The opinion of the court was delivered by: Farrell

This appeal arises from a judgment for legal malpractice in favor of appellant David D. Dalo against his attorneys, appellees Kivitz and Liptz. Dalo challenges the refusal of the trial court, as trier of fact, to award him attorney's fees as damages, punitive damages, and certain compensatory damages. *fn1 Only the third claim has merit, necessitating a partial remand for further proceedings.

I.

During the summer of 1988 Dalo, a real estate developer, negotiated a real estate contract to purchase property in the District of Columbia known as "Greystone" for $3,765,000. Pursuant to an assignment agreement, Dalo assigned his right to buy Greystone to J. Eugene Wills, also a real estate developer. Under the terms of the assignment agreement, if Wills purchased Greystone, he owed Dalo $435,000; if Wills through no fault of Dalo's failed to purchase Greystone, he owed Dalo $87,000, that sum to be held in escrow. The closing on the transaction was scheduled for October 4, 1988.

Meanwhile Dalo's attorneys, law partners Kivitz and Liptz, *fn2 arranged a joint venture among themselves, Dalo, and another client, banker Charles J. D'Arco. The purpose of the venture was to split the $435,000 Dalo expected to earn from the Greystone transaction. When entering this business venture with the clients, Kivitz and Liptz failed to advise either client about the potential conflicts of interest that existed among the parties to the joint venture agreement.

On October 3, 1988, Kivitz, Liptz and D'Arco learned that Dalo intended to renege on his promise to split the money. On October 4, therefore, Kivitz, Liptz and D'Arco sued Dalo, the title company for the Greystone deal, and the stakeholders of the money held in escrow. They requested a declaratory judgment of the validity of the joint venture agreement and claimed their shares of Dalo's proceeds from the Greystone transaction, scheduled to close that day. Upon filing the lawsuit, Kivitz and Liptz terminated their attorney-client relationship with Dalo, withdrew from representing him in all pending litigation, and retained possession of Dalo's files as a lien for over $17,000 in outstanding attorney's fees. For reasons unrelated to the lawsuit brought by the attorneys, Wills never purchased Greystone. The stakeholders for the transaction froze the escrow account pending the outcome of the lawsuit. Ultimately, Dalo lost the opportunity to collect the $87,000 due under the assignment agreement with Wills.

Dalo responded to the lawsuit by filing a nine-count counterclaim against Kivitz, Liptz and D'Arco for injuries he sustained from the conduct of his attorneys regarding the Greystone deal, including the filing of the lawsuit against him. *fn3 Dalo requested compensatory damages, punitive damages against Kivitz and Liptz, the return of his legal files, and attorney's fees.

The trial Judge entered summary judgment against Kivitz, Liptz and D'Arco on the merits of their contract claims against Dalo, concluding that the joint venture agreement was void because Kivitz and Liptz, as Dalo's attorneys, had engaged in a business deal with Dalo while failing to discharge their fiduciary duties owed him in the attorney-client relationship. That ruling was indisputably correct. *fn4 See Rule 1.8, Rules of Professional Conduct; Fielding v. Brebbia, 130 U.S. App. D.C. 270, 272, 399 F.2d 1003, 1005 (1968); United States v. Orsinger, 138 U.S. App. D.C. 403, 412, 428 F.2d 1105, 1114, cert. denied, 400 U.S. 831, 91 S. Ct. 62, 27 L.Ed.2d 61 (1970).

After a bench trial on Dalo's counterclaims, Judge Taylor determined that Kivitz and Liptz had committed legal malpractice in the form of numerous violations of ethical standards. *fn5 On appeal, this malpractice liability is undisputed. However, the Judge awarded Dalo damages only in the amount of $737.50 for "costs associated with reconstructing [Dalo's] files that Kivitz and Liptz failed and refused to turn over to Dalo." On appeal, Dalo challenges the denial of additional damages in three respects.

II.

Dalo first seeks attorney's fees as an element of his damages, contending he should be compensated for successfully defending against the contract claims by Kivitz and Liptz and also for prosecuting his own successful malpractice claims against the attorneys.

Dalo takes no issue with the American Rule under which, as interpreted in this jurisdiction, "every party to a case shoulders its own attorneys' fees, and recovers from other litigants only in the presence of statutory authority, a contractual arrangement, or certain narrowly-defined common law exceptions." Synanon Found., Inc. v. Bernstein, 517 A.2d 28, 35 (D.C. 1986). See also In re Antioch Univ., 482 A.2d 133, 136 (D.C. 1984); Biddle v. Chatel, 421 A.2d 3, 7 (D.C. 1980). To justify his claim for attorney's fees, Dalo invokes principles similar to those underlying the exception to the American Rule for wrongful involvement in litigation. See Auxier v. Kraisel, 466 A.2d 416, 420-21 (D.C. 1983). Under this exception, attorney's fees may be awarded to clients who have been forced into litigation by their attorney's malpractice. See, e.g., Knight v. Furlow, 553 A.2d ...


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