Before Steadman, Schwelb and Ruiz, Associate Judges.
The opinion of the court was delivered by: Steadman, Associate Judge
Appeal from the Superior Court of the District of Columbia (Hon. Steffen W. Graae, Trial Judge)
Argued September 30, 1999
Opinion for the court by Associate Judge Steadman.
Concurring opinion by Associate Judge Schwelb at p. ___.
Breezevale Limited ("Breezevale") is a former client of the law firm of Gibson, Dunn & Crutcher LLP ("GDC"). In a legal malpractice action against GDC,*fn1 a jury found that GDC had mishandled a lawsuit filed by Breezevale against Bridgestone-Firestone, Inc. and Firestone Export Sales Corp. (collectively "Firestone"), resulting in $3,430,000 in damages. The damage award reflected the amount that Breezevale hypothetically would have won had its case against Firestone gone to a jury instead of settling due to GDC's alleged malpractice.
Citing evidentiary insufficiency, the trial court set aside the jury's verdict and entered judgment as a matter of law in favor of GDC. In the alternative, the court granted a new trial. Further, the trial court concluded that Breezevale had engaged in bad faith litigation and ordered it to pay GDC $5,356,633 in fees and costs, punitive damages, and unpaid legal fees. We reverse the entry of judgment as a matter of law insofar as it relates to two of the three claims underlying the litigation, but affirm the entry of judgment as to the third underlying claim. We remand the grant of a new trial for further consideration. We vacate without prejudice the order awarding sanctions for bad faith litigation and unpaid legal fees.
Phase One: Breezevale v. Firestone
In October 1989, Breezevale hired GDC to investigate and pursue several potential claims against Firestone arising from business dealings involving Iraq and Nigeria. In 1990, on GDC's advice, Breezevale brought suit in the United States District Court for the Northern District of Ohio,*fn3 seeking damages of approximately $20,000,000. Its first two sets of claims alleged that Firestone had committed breach of contract and fraud in its sale of tires to Iraq in 1988 and 1989 while it had an exclusive distributorship agreement with Breezevale ("1988 Iraq claim" and "1989 Iraq claim" respectively). Its third claim alleged that Firestone had breached a promise to develop a manufacturing plant in Nigeria with Breezevale ("Nigeria claim"). There is no dispute that Ohio law governed the action.
Discovery began in preparation for trial. At some point in mid-1991, Firestone offered to settle the case by paying Breezevale $3,500,000 and entering into a five-year distribution agreement for Nigeria, but Breezevale rejected the offer on GDC's advice. Discovery continued accordingly, including the scheduling of a particular Breezevale employee for deposition on October 14, 1991. On the night of October 13, however, a legal bomb dropped when that employee revealed to a GDC associate attorney that she planned to testify during her deposition that she had personally forged certain documents produced to Firestone, specifically offer letters dated late 1987 pertaining to the sale of tires to Iraq, at the direction of and with the participation of a certain Breezevale executive.
The following morning, just before the deposition, the GDC associate took the Breezevale employee to the office of a GDC partner to discuss the situation and ask how to proceed. The partner decided that the deposition should go forward without immediately notifying Breezevale, even though someone from Breezevale actually phoned during the meeting. However, after uneventful morning testimony, the partner and the associate did go to Breezevale's offices during the lunch break and advise a different Breezevale executive of the impending testimony. The executive immediately asserted that the employee was lying and asked the partner to delay the deposition until GDC could investigate the allegations. The partner refused, and the employee proceeded to give her damaging testimony that afternoon. On a subsequent day, she also retrieved from her home certain "corroborating evidence" of the forgeries. This evidence was made part of the deposition record.
Firestone's attorneys immediately began drafting a motion to dismiss all of Breezevale's claims with prejudice as a sanction for fraud and misconduct. Upon threat of imminent filing of the motion, and with GDC's advice, Breezevale settled with Firestone for $100,000.
Phase Two: Breezevale v. GDC
In October 1994, Breezevale filed suit against GDC in the District of Columbia Superior Court for legal malpractice in its handling of the Firestone litigation. Breezevale basically contended that GDC had abandoned its client upon learning of the impending damaging deposition testimony, even though adequate investigation would have revealed that the employee was lying. According to Breezevale, GDC thus violated the legal standard of care and irreparably damaged Breezevale's suit against Firestone. Breezevale initially argued both that GDC's malpractice prevented a better settlement and that it prevented Breezevale from prevailing at trial. However, the trial court ultimately ruled that the "better settlement theory" was too speculative and instructed the jury only on the "trial theory."*fn4
Under the "trial theory," Breezevale sought damages in the amount it would have hypothetically been awarded had its case against Firestone gone to trial in Ohio. Thus, the actual jury in the malpractice case against GDC also acted as a "hypothetical jury" hearing the Ohio case against Firestone. See Thomas v. Bethea, 718 A.2d 1187, 1197 (Md. 1998) ("`this is the accepted and traditional means of resolving the issues involved in the underlying proceeding in a legal malpractice action' and `avoids speculation by requiring the plaintiff to bear that burden of producing evidence that would have been required in the underlying action'") (quoting Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 14.3, at 237-38 (4th ed. 1996 and Supp.1998)); see also Niosi v. Aiello, 69 A.2d 57, 60 (1949).
Both sides presented expert testimony on the legal standard of care. Although both experts agreed that the employee's deposition would have eventually gone forward, Breezevale's expert testified that GDC breached the standard of care by (1) failing to inform Breezevale promptly of the employee's expected testimony; (2) failing to advise the employee immediately that GDC could no longer act as her attorney since she now had a conflict of interest with Breezevale and that she should obtain separate counsel; (3) failing to postpone the deposition so that GDC could (a) recommend settlement immediately, (b) investigate and be prepared to discredit the employee at the eventual deposition, and/or (c) investigate and recommend withdrawal of any forged documents and amendment of any related interrogatories; and (4) advising Breezevale to settle without first informing it that GDC had developed a personal conflict of interest to the extent it was worried about its own liability as a conduit of the documents.
After seven weeks of trial, the jury awarded Breezevale $3,430,000 by way of a special verdict form. Specifically, the jury found that GDC had breached the standard of care in its representation of Breezevale and thereby proximately caused damage to Breezevale's case against Firestone. The jury further found that forgeries did occur with the participation of "one or more Breezevale executives," but that such forgeries did not "play a substantial part in damaging" Breezevale's lawsuit against Firestone and that Breezevale still would have won $1,500,000 on its 1988 Iraq claim for breach of contract and fraud, $730,000 on its 1989 Iraq claim for breach of contract (but not fraud), and $1,200,000 on its Nigeria claim based on promissory estoppel.
Notwithstanding the verdict, the trial court entered judgment as a matter of law in favor of GDC. It based its decision on three grounds. First, in light of the factual finding of forgery, the court found no evidence to support the jury's conclusion that GDC's malpractice proximately caused Breezevale's loss. The court reasoned that delaying the deposition would only have postponed subsequent events, not avoided them. Second, in light of the finding of forgery, the court concluded that Breezevale's own actions had proximately caused their losses and that Breezevale was therefore necessarily contributorily negligent. Third, the court found no evidence to support the jury's findings on damages. In the alternative, in a single sentence, the court granted a new trial on the ground that the verdict was against the clear weight of the evidence.
Just when Breezevale may have thought things could get no worse, they did. After trial and its ruling granting judgment as a matter of law, the court considered GDC's "equitable counterclaim" for bad faith litigation from the bench. Consistent with the jury's factual finding of forgery by a preponderance of the evidence, see Lewis v. Sears Roebuck & Co., 845 F.2d 624, 629-30 (6th Cir. 1988) (stating that trial court considering equitable claim with common factual issue as legal claim decided by jury should not make contrary or inconsistent finding), the trial court found by clear and convincing evidence that forgery had occurred with the participation of one or more Breezevale executives. Concluding that it was "difficult to imagine a clearer case of bad faith litigation," the court ordered Breezevale to pay GDC a ...