Zoss v. Protsch et al

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
FREDERICK M.ZOSS,
Plaintiff 4:20-ev-4211
vs. MEMORANDUM
GREG PROTSCH and AND ORDER
MUMFORD & PROTSCH,LLP,
Defendants
Pending before the Court are the Parties' cross motions for summary
judgment. Defendants move for partial summary judgment, asserting that as a
matter of South Dakota law, which governs this dispute, noneconomic damages are
not available in an attorney malpractice case such as the case before the Court.
(Doc. 30). They argue such damages are not foreseeable and therefore cannot be
recovered. Plaintiff opposes the motion.(Doc. 35). The Court notes that Plaintiffs
Brief(Doc. 35)serves as a brief in opposition to Defendants' motion(Doc. 30) and
in support of its own(Doc. 37). Defendants have replied to Plaintiffs response.
(Doc. 47).
Plaintiff has filed a motion which is the mirror-image ofthe Defendants'
partial summary judgment motion, arguing noneconomic damages can be
recovered in an attorney malpractice case. (Doc. 37). Plaintiff moves for
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summary judgment on the issue and seeks a ruling that his claim to such damages
is sufficient to create a jury question.(Id.) Defendants have responded to
Plaintiffs motion addressing noneconomic damages(Doc. 49). Plaintiff has
replied.(Doc. 56).
Background
Plaintiff filed suit against Defendant law firm, Mumford & Protsch, LLP,
and Attorney Protsch, alleging malpractice in Protsch's handling ofPlaintiffs sale
of cattle. The facts gleaned from the documents filed by the Parties reveal the
following: Plaintiff is a retired schoolteacher and part-time farmer. Plaintiff
advertised 198 Black Angus cattle for sale through a newspaper advertisement
placed on December 8, 2017. Plaintiff sold his cattle to Curt Knutson, who
responded to the ad.(Doc. 1,^13). Plaintiff agreed to take a deposit and to finance
the rest ofthe $270,000 purchase price himself with a "contract for deed."(Doc.
46-3,PgID 478, quoting text of ad). He transferred the cattle during December 20-
23, 2017, in advance of a snowstorm and accepted a $30,000 check. On December
28, 2017, Plaintiff met with Protsch to arrange for paperwork for the sale. At that
time. Defendant advised Plaintiff he should not have handled the livestock sale in
this manner. Defendant also prepared UCC financing statements, a contract,
security agreement and promissory note, which Zoss and Knutson signed on
December 30, 2017. Defendant advised Zoss he would file and obtain a super
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priority purchase money security interest in connection with the sale. Protsch filed
UCC financing statements in early January 2018 in North Dakota and South
Dakota but included inaccurate information identifying the buyer.
In September 2019, Knutson was required to pay $30,000 to Zoss but
defaulted. Zoss went to Knutson's farm and found that only 67 cows were at the
property. Eventually, Knutson filed for bankruptcy. A credit union had a blanket
security interest in Knutson's property as of 2016.
Plaintiff alleges malpractice in that Defendant: 1- failed to file the UCC
financing statements in a manner to perfect Plaintiffs lien; 2- failed to search for
other lien holders; 3-failed to include a provision in the contract addressing
replacement ofthe cattle; 4-failed to provide competent legal advice; and 5-failed
to notify Plaintiffthat he may have committed malpractice.(Doc. 1). Plaintiff
alleges breach of fiduciary duty for the same conduct and seeks compensatory
damages, costs, and disbursements. Defendants deny the claims, and assert they
are not the cause of any damages sustained by Plaintiff. (Doc. 14)
Legal Standard
1. SUMMARY JUDGMENT
Fed. R. Civ. Pro. 56 provides as follows:
Rule 56. Summary Judgment
(a) Motion for Summary Judgment or Partial Summary Judgment. A party
may move for summary judgment, identifying each claim or defense—or the
part of each claim or defense-on which summary judgment is sought. The
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court shall grant summary judgment ifthe movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law. The court should state on the record the reasons
for granting or denying the motion.
Fed. R. Civ. Pro. 56.
As many courts have emphasized, summary judgment is designed to implement the
goal ofthe Federal Rules as a whole, which is to "secure the just, speedy and
inexpensive determination of every action." Celotex Corp. v. Catrett, All U.S.
317, 327(1986)(quoting F.R.C.P. 1).
Rule 56(c) requires that summary judgment be entered "ifthe pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to ajudgment as a matter of law." Fed. R. Civ. P.
56(c). Garrison v. ConAgra Foods Packaged Foods, LLC, 833 F.3d 881, 884(8th
Cir. 2016)(citing Fed. R. Civ. P. 56(c)). As the Eighth Circuit has noted,
"[Sjummary judgment is not disfavored and is designed for every action." Briscoe
V. Cnty. ofSt. Louis, 690 F.3d 1004, 1011 n.2(8th Cir. 2012)(quoting Celotex, All
U.S. at 327). When cross motions for summary judgment are before the Court, the
general principles governing summary judgment apply. Anderson v. Nationwide
Agribusiness Insurance Co., 2022 WL 3445838, *1 (D.S.D. 2022).
In reviewing a motion for summary judgment, a court examines "the record
in the light most favorable to the nonmoving party ... drawing all reasonable
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inferences in that party's favor." Whitney v. Guys, 826 F.3d 1074, 1075 (8th Cir.
2016)(citing Hitt v. Harsco Corp., 356 F.3d 920, 923-24(8th Cir. 2004)). See
also AgriStor Leasing v. Farrow, 826 F.2d 732,734(8th Cir. 1987); Rosebud
Sioux Tribe v. Barnett, 2022 WL 1689393, *2(D.S.D. 2022). The moving party
bears the burden of showing both the absence of a genuine issue of material fact
and its entitlement to judgment as a matter of law. Fed. R. Civ. P. 56(c); Anderson
V. Liberty Lobby, Inc., All U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d202(1986).
2. SUBSTANTIVE CLAIMS
The basis ofPlaintiffs lawsuit is a claim for legal malpractice. The elements
of such a claim have been set forth in many cases, including Zhi Gang Zhang v.
Rasmus, as follows: "(1)the existence of an attorney-client relationship giving rise
to a duty;(2)the attorney, either by an act or failure to act, breached that duty;(3)
the attorney's breach of duty proximately caused injury to the client; and (4)the
client sustained actual damage." 932 N.W.2d 153, 162(S.D. 2019)(quoting
Peterson v. Issenhuth, 842 N.W.2d 351, 355 (S.D. 2014)). See also Loring v.
United States, 2020 WL 1274989, *4(D.S.D. 2020).
Plaintiff has also alleged Defendants breached their fiduciary duty to him.
The elements of a claim of that nature were described in Chem-Age Industries v.
Glover as follows:"a plaintiff must prove:(1)that the defendant was acting as
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plaintiffs fiduciary;(2)that the defendant breached a fiduciary duty to plaintiff;(3)
that plaintiff incurred damages; and(4)that the defendant's breach ofthe fiduciary
duty was a cause of plaintiffs damages." 652 N.W.2d 756, 772(S.D. 2002)
(quoting Grand State Property, Inc. v. Woods, Fuller, Schultz, & Smith, 556
N.W.2d 84, 88(S.D. 1996)).
The issue before the Court with respect to the Parties' motions is a narrow
one: whether noneconomic damages may be recovered in a legal malpractice and
breach offiduciary duty case. A federal court sitting in diversity is cognizant that
its task is "to interpret state law" and not to "contravene clear directives from state
supreme courts." Dzadiekv. Charter Oak Fire Insurance Company, 867 F.3d
1003, 1011 (8th Cir. 2017)(citing Karas v. American Family Insurance Co., 33
F.3d 995,1000(8th Cir. 1994)). With that guidance the Court must examine current
provisions of South Dakota law to resolve the question.
In Hamilton v. Sommers,the South Dakota Supreme Court discussed the
issue of causation in a legal malpractice case and emphasized that proximate cause
is an essential element. 855 N.W.2d 855, 861 (S.D. 2014)(quoting Bernie v.
Catholic Diocese ofSioux Falls, 821 N.W.2d 232, 240(S.D. 2012)). The same
standard applies in a claim of breach offiduciary duty. Chem-Age, 652 N.W.2d at
111.
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In Peterson, the facts before the court involved a client who did not contact
the attorney until after the action which had caused the damage. The court made
clear that "[A]ctions of the defendant attorney in a malpractice action [cannot] be
the proximate cause of plaintiff[][client's] losses under a contract [that] existed
before the attorney became involved in the transaction." 842 N.W.2d at 356
(quoting Weiss v. Van Norman, 562N.W.2d 113, 117(S.D. 1997)). The court
added that "an attorney is liable in a malpractice action only for losses actually
sustained as a proximate result of the conduct ofthe attorney." Id.(quoting Weiss
at 117; Staab v. Cameron, 351 N.W.2d 463, 466(S.D. 1984)). The Peterson court
then discussed damages, all of which were economic, and stated plaintiffs could
not recover because they had entered into the contract before contacting the
attorney, who could not be responsible for their losses. Id. at 356.
Although noneconomic damages appear not to have been addressed in
Peterson, the South Dakota Supreme Court did analyze the circumstances under
which they may be awarded in Maryott v. First Nat. Bank ofEden, a case
involving a bank's wrongful dishonor ofthe plaintiffs checks. 624 N.W.2d 96
(S.D. 2001). On appeal, the court approved the award of damages to cover the
financial losses resulting from the bank's actions but disapproved the award of
damages for emotional distress under the pertinent UCC provision. Id. at 103. In
its analysis, the court restated the applicable rule for tort cases as follows:"South
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Dakota allows recovery of emotional damages only when intentionally inflicted or
accompanied by actual physical injury." Id. (quoting Stene v. State Farm Mut. Auto
Ins. Co., 583 N.W.2d 399,404(S.D. 1998)).
Federal courts sitting in diversity have applied this rule eonsistently. See,
e.g., Dzadiek, 867 F.3d at 1010-11 (citing Stabler v. First State Bank ofRoscoe,
865 N.W.2d 466,479(S.D. 2015)). In Justice v. Carter, the Eighth Circuit
affirmed the district court's denial of emotional distress damages in a legal
malpractice action, where the lower court had determined that "under South
Dakota law, there was no basis to submit the issues of mental anguish, emotional
distress, or loss of lifestyle to the jury in this legal malpractice case" concluding
that "no error oflaw appears." 972 F.2d 951,957(8th Cir. 1992).
Analysis
The problem before the Court is whether South Dakota follows the general
rule that noneconomic damages are not foreseeable in a legal malpractice action
and therefore are not recoverable. In jurisdictions that follow the rule, a plaintiff
ordinarily must prove either intentional or negligent infliction of emotional distress
to recover noneconomic damages. Maryott, 624 N.W.2d at 103. The rationale is
as follows:
three principal concerns continue to foster judicial caution and doctrinal
limitations on recovery for emotional distress:(1)the problem of permitting
legal redress for harm that is often temporary and relatively trivial;(2)the
danger that claims of mental harm will be falsified or imagined; and(3)the
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perceived unfairness of imposing heavy and disproportionate financial
burdens upon a defendant, whose conduct was only negligent....
Id. (quoting Wright v. CocaCola Bottling Co., 414 N.W.2d 608,610(S.D. 1987)).
Defendants submit the rule is firmly in place, perhaps subject to narrow
exceptions in cases involving egregious conduct by the attorney involved. See,
e.g., Innes v. Marzano-Lesnevich, 87 A.3d 775, 792(N.J. Super. 2014)(emotional
distress damages should not be awarded in legal malpractice case absent egregious
or extraordinary circumstances, and finding them where attorney gave child's
passport to mother, allowing her to remove child from the country permanently and
causing "rupture" of father-child bond)); Miranda v. Said, 836 N.W.2d 8, 32-34
(Iowa 2013)(foreseeable that egregious conduct of attorney in recommending
conduct that resulted in deportation of client and family separation for a decade
would result in severe emotional distress). Accord, McFarland v. Rieper, 929
N.W.2d 273(Iowa Ct. App. 2019)(reversing award of emotional distress damages
in adoption case). In these cases of egregious attorney malpractice, the courts focus
on the personal, not simply pecuniary, interest ofthe plaintiff in determining that
economic damages are not sufficient compensation. Defendants submit that
whether the general rule or its narrow exception applies in this case. Plaintiff
cannot recover noneconomic damages.
Plaintiff does not concede that South Dakota follows the general rule
precluding the award of noneconomic damages in legal malpractice cases and
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suggests the court has taken a broad view ofthe availability of noneconomic
damages in tort cases. He cites Fix v. First State Bank ofRoscoe, and in particular
its language that Maryott's limitations should be "read narrowly." 807 N.W.2d
612,616(S.D. 2011). The Fix court does use this language but then addresses the
claims before it, including intentional infliction of emotional distress and abuse of
process, the latter having been tried to ajury. Id. at 614. The facts pertinent to the
case at bar involved the State's Attorney's filing a criminal charge against the
plaintiff while the attorney was representing the defendant bank, and then offering
to dismiss the charge if plaintiff would deed property back to the bank. M at 615.
In addressing the abuse of process claim against the attorney(who had settled) and
bank,the court rejected the notion that plaintiffs emotional distress had to be
"extreme and disabling" to warrant recovery as abuse of process is an intentional
tort. Id. With respect to the intentional infliction of emotional distress claim, the
court noted that while the Bank may have acted intentionally, its conduct was not
"extreme and outrageous" and therefore, plaintiff could not recover from the bank
on this claim. Id. In this Court's view. Fix is instructive on the availability of
damages for emotional distress but does not create a rule deviating from the
general rule governing damages in attorney malpractice cases.
Plaintifffurther argues a trend has developed to allow noneconomic
damages in legal malpractice cases if the jury determines they are foreseeable.
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citing Vincent v. DeVries, 2013 VT 34, 193 Vt. 574, 72 A.3d 886. See also Salley
V. Childs, 541 A.2d 1297, 1301 (Me. 1988). Plaintiff urges this Court to rule that
South Dakota is poised to follow that trend and to rule Plaintiffs noneconomic
claim should go to the jury. For the following reasons, the Court declines to rule as
Plaintiff urges.
In support of its theory that the South Dakota Supreme Court would embrace
the trend to expand the possible recovery of noneconomic damages. Plaintiff
claims there is a "signal"(Doc. 56,PgID 833)in Kreisers Inc. v. First Dakota Title
Ltd. Partnership, 852 N.W.2d 413(S.D. 2014). Plaintiffs sued under a negligence
and negligent misrepresentation theory arising from a land transaction which
resulted in unexpected tax exposure to plaintiffs. The court affirmed that the parties
had the option to sue in contract or tort, and thus were not limited to the contract's
allocation of loss. The court cited cases in support of its position that the economic
loss doctrine has been rejected in negligence cases, including legal malpractice
actions. Id. at 422(citing Clark v. Rowe,428 Mass. 339,701 N.E.2d 624,627
(1998); Collins v. Reynard, 154 I11.2d 48,607 N.E.2d 1185 (1992)). Yet the
damages awarded were monetary only, which is what plaintiffs had sought.
Kreisers, then, does not clearly support the extension ofthe general rule that
Plaintiff seeks.
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The cases Plaintiff cites from jurisdictions other than South Dakota also do
not support both prongs of his argument. For example,Plaintiff relies on Vincent
as support for the trend to allow noneconomic damages in legal malpractice
actions. Yet, in Vincent, the court stated:"The vast majority ofjurisdictions do not
allow recovery of emotional distress damages in legal malpractice cases where the
claim of malpractice is not premised on intentional acts, physical injury, or
particularly egregious conduct." 72 A.3d at 894. In support of its position
describing this newer rule, the court quotes authority from a number of states. See,
e.g., Lichteig v. Alderson, Ondov, Leonard & Sween, P.A., 556 N.W.2d 557, 561-
62(Minn. 1996); Reed v. Mitchell & Timhanard, P.C., 183 Ariz. 313, 318,903
P.2d 621,626(1995). The trend is described accurately by the Vincent court and is
not broad enough to embrace attorney conduct that is not egregious or outrageous.
In Vincent itself, the court denied damages for emotional distress resulting from
attorney malpractice in connection with the threatened loss ofthe elderly plaintiffs
home and his having to re-pay a buyer substantial financial compensation. Id. at
897. The court determined the attorney's representation was "not of such a
personal and emotional nature" that it would fit the "exception" to the general rule
disallowing recovery in the absence of"physical impact or substantial bodily
injury or sickness." Id. Tellingly, the court distinguished the facts before it from
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cases involving "the loss of liberty or one's child" which might fit the exception
for awarding emotional distress damages from attorney malpractice. Id.
Plaintiff is correct that some jurisdictions allow damages for mental anguish
in a legal malpractice action. See, e.g., Henderson v. Domingue,626 So. 2d 255
(La. Ct. App. 1993); Anthony V. Yokum,2011 WL 1734080(La.App. 1 Cir. 2011);
Gore V. Rains & Block, 473 N.W.2d 813(Mich. Ct. App. 1991). Plaintiff is also
correct that South Dakota allows noneconomic damages in tort actions S.D.C.L. §
21-3-1. See, e.g.. Roth v. Farner-Bocken, 667N.W.2d 651,663(S.D. 2003)
(affirming award of compensatory damages in invasion of privacy action where
plaintiff testified to his feelings of anger, betrayal, and devastation); Bucher v.
Staley, 297 N.W.2d 802, 806(S.D. 1980)(prevailing on claim of malicious
prosecution can result in damages for humiliation, embarrassment, and mental
anguish). To date, however, the South Dakota Supreme Court has not held that
such damages are available in a legal malpractice action that does not involve
claims of intentional or negligent infliction of emotional distress.
Conclusion
The South Dakota Supreme Court may adopt a rule permitting noneconomic
damages in attorney malpractice cases if an attorney's conduct has been egregious
or outrageous and is foreseeably harmful to plaintiffs personal interests. No such
case, at least in recent times, has been presented to the South Dakota Supreme
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Court with such a claim. The court has not adopted such a rule to date, and this
Court will not presume the South Dakota Supreme Court will do so. In addition,
even ifthe Court adopted this rule. Defendants' conduct as reflected in the
documents submitted to the Court does not rise to the level of egregious or
outrageous conduct where such damages would be warranted.
Plaintiff has moved for partial summary judgment, asking that the Court
first, determine as a matter of law that noneconomic damages are available in a
legal malpractice case and second, that plaintiff has submitted enough factual
information to submit his claim to ajury.(Doc. 37). The Court denies both parts
ofPlaintiffs motion. That is, the South Dakota Supreme Court has not established
the rule Plaintiff seeks governing noneconomic damages in legal malpractice cases
and this Court will not presume the South Dakota Supreme Court would adopt
such a rule. In addition, even ifthis Court were to adopt the modified rule
allowing such damages where the attomey's conduct has been egregious, the facts
Plaintiff has alleged would not support proceeding with the claim of egregious
conduct.
The Defendants have moved for partial summary judgment on the issue of
whether, as a matter of law, noneconomic damages are not available in an attorney
malpractice case in South Dakota. The Court grants the Defendants' motion for
partial summary judgment on this issue.(Doc. 30).
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Accordingly,IT IS ORDERED that:
1. Defendants' motion for partial summary judgment(Doc 30)is granted;
2. Plaintiffs motion for partial summary judgment(Doc. 37)is denied.
Dated this Q day of January, 2023.
BY THE COURT:
ATTEST:
MATTHEW W.THELEN,CLERK
Lawrence L. Piersol
United States District Judge
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