INNA V. BOIKO and LOUIS PICARELLA, Appellants and Cross-Appellees,
v.
GEORGE M. KAPOLCHOK and GEORGE KAPOLCHOK LAW OFFICES, INC., Appellees and Cross-Appellants.
Appeal
from the Superior Court No. 3AN-14-10765 CI of the State of
Alaska, Third Judicial District, Anchorage, Pamela Scott
Washington, Judge pro tern.
James
Alan Wendt, Law Offices of James Alan Wendt, Anchorage, for
Appellants/Cross-Appellees.
George
M. Kapolchok, George Kapolchok Law Offices, Inc., Anchorage,
for Appellees/Cross-Appellants.
Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and
Carney, Justices.
OPINION
WINFREE, JUSTICE
I.
INTRODUCTION
A
self-represented couple sued their lawyer for legal
malpractice. After lengthy and contentious discovery
disputes, at the end of which the couple was sanctioned, the
couple retained counsel to assist them in terminating the
litigation. The parties agreed to dismiss the suit with
prejudice, leaving open the couple's former lawyer's
right to seek an award of attorney's fees. This appeal
focuses on the superior court's decisions regarding that
lawyer's motion for attorney's fees.
Very
early in the litigation the lawyer gave the couple a joint,
unapportioned Alaska Civil Rule 68 offer of judgment. The
superior court ruled the offer was invalid. Following our
precedent that joint, unapportioned offers of judgment
generally are invalid, we affirm the superior court's
ruling as a matter of law.
The
superior court applied Alaska Civil Rule 82 for its award of
partial reasonable attorney's fees to the lawyer. But
instead of employing Rule 82(b)(2)'s standard 20%
calculation for an award without a money judgment, the court
applied Rule 82(b)(3), which allows courts to vary from the
standard award. The court made findings and exercised its
discretion to use 15% for calculating its fee award to the
lawyer, and it left the discovery sanction against the couple
in place. We conclude that the superior court's findings
are not clearly erroneous and that the court did not abuse
its discretion or otherwise err when it applied Rule
82(b)(3); we also conclude that the court did not abuse its
discretion in levying and leaving in place the discovery
sanction.
We
therefore affirm the superior court's judgment.
II.
FACTS AND PROCEEDINGS
Inna
Boiko and Louis Picarella retained attorney George Kapolchok
and his law firm to represent them in dental malpractice and
loss of consortium claims after Boiko underwent procedures
allegedly resulting in disfigurement and extreme pain. The
dentist moved for partial summary judgment, arguing that the
statute of limitations period had expired before the initial
complaint was filed. Boiko and Picarella opposed, asserting
that there were genuine issues of material fact regarding the
date the statute of limitations began to run.
While
the summary judgment motion was pending, the parties engaged
in settlement negotiations. Months later, on December 13,
2012, the court denied the motion, holding that - based on
the continuing course of treatment doctrine - the original
complaint was timely filed. A certificate of distribution on
the order indicates it was mailed to the parties'
attorneys the day it was issued. On December 17 Boiko and
Picarella signed a settlement agreement in Kapolchok's
office. They stipulated to dismissal of the case, with
prejudice, in return for a settlement payment. The day after
the settlement agreement was signed, Kapolchok's
paralegal emailed Picarella the favorable summary judgment
decision.
Boiko
and Picarella, self-represented, subsequently filed a
complaint against Kapolchok and his law firm (collectively
Kapolchok unless otherwise noted). They contended that they
had settled the dental malpractice lawsuit without knowledge
of the favorable summary judgment ruling and that Kapolchok
deliberately had withheld the decision to induce them to
settle at that time. They alleged legal malpractice,
intentional and negligent misrepresentation, intentional and
negligent infliction of emotional distress, breach of
fiduciary duties, breach of contract, and unfair business
practices.
Kapolchok
retained a second attorney to represent his corporate law
firm and assist him in defending the legal malpractice claim.
One month after service of the complaint, Kapolchok made the
couple a $1, 500 joint, unapportioned Rule 68 offer of
judgment.[1] The offer was not accepted. Following a
lengthy and contentious discovery process, including
Kapolchok filing several motions to compel, the superior
court levied $2, 000 in sanctions against Boiko and
Picarella: $1, 000 to be paid to the court, and $1, 000 to be
paid to Kapolchok.
At this
point Boiko and Picarella hired an attorney, who filed a
motion for complete dismissal of their claims with prejudice,
conditioned on their ability to contest any attorney's
fees motion by Kapolchok. The superior court dismissed the
case with prejudice and gave Kapolchok a deadline to file a
motion for attorney's fees.
Boiko
and Picarella preemptively moved for the superior court to
hold the Rule 68 offer of judgment invalid because it was an
unapportioned, joint offer[2] and to instead calculate any
attorney's fees award under Rule 82.[3] Kapolchok
opposed, arguing that no apportionment problems existed
because they were husband and wife and Picarella's loss
of consortium claim was purely derivative of Boiko's
claims. Kapolchok noted they had accepted a joint check for
the dental malpractice settlement, undermining their
purported need for apportioned offers in the legal
malpractice case. Kapolchok then sought attorney's fees
under Rule 68. He contended that after a year's defense
work he had incurred $85, 296 in fees and was entitled to an
award of 75% of that amount.
Boiko
and Picarella opposed; they asserted that instead of Rule
82's usual 20% award, the court should decline to award
any attorney's fees at all. They enumerated several
grounds for a variance under section (b)(3) of the rule,
including reasonableness of their legal malpractice claims,
Kapolchok's vexatious and bad faith conduct in both the
dental and legal malpractice cases, and their status as
self-represented plaintiffs.[4]
Before
Kapolchok replied, the superior court ruled without
elaboration that the Rule 68 offer of judgment was invalid.
Kapolchok then recomputed his prospective fee award under
Rule 82, submitting billings dating back to the first day of
litigation instead of the offer of judgment, totaling $123,
099.50. Kapolchok also requested an enhancement from 20% to
50% under section (b)(3) of the rule, based on the
unreasonableness of Boiko's and Picarella's claims
and their vexatious and bad faith conduct throughout the
litigation.[5]
The
superior court awarded Kapolchok Rule 82 attorney's fees,
but reduced the calculation from 20% to 15% under section
(b)(3) of the rule. The final judgment included the discovery
sanction levied against Boiko and Picarella, for a total
judgment of $18, 902.33.
Boiko
and Picarella filed a motion to reconsider, arguing that the
court should have considered Kapolchok's vexatious
conduct in the underlying dental malpractice case and that
the court overlooked Kapolchok's use of privileged
information to harass the couple in the present litigation.
The court denied the motion, stating that "[i]t is not
appropriate for this court to consider [Boiko's and
Picarella's] claims about [Kapolchok's] bad faith or
vexatious conduct in the underlying action that forms the
basis of this malpractice case when deciding whether to
enhance or reduce attorney fees in this case."
Boiko
and Picarella appeal the court's decision to award
attorney's fees and to maintain the discovery sanction.
Kapolchok cross-appeals, challenging both the court's
decision invalidating the Rule 68 offer and its decision to
reduce rather than enhance attorney's fees under Rule
82(b)(3).
III.
STANDARD OF REVIEW
The
validity of a Rule 68 offer of judgment presents a question
of law that we review de novo.[6] We review an award of
attorney's fees under Rule 82 for abuse of discretion and
will not disturb the award on appeal unless it is
"arbitrary, capricious, manifestly unreasonable, or
improperly motivated."[7] When an award or enhancement
"calls into question [a party's] litigation conduct
and the potential merits of [the party's] underlying...
motions, we assess de novo the legal and factual viability of
[the] motions and review relevant findings of fact for clear
error."[8] We review imposition of discovery
sanctions for abuse of discretion.[9]
IV.
DISCUSSION
A.
The Rule 68 Offer Was Invalid.
Kapolchok
made a $1, 500 joint offer of judgment to Boiko and Picarella
"in complete satisfaction of all [their] claims."
Kapolchok argues that the couple's rejection of this
offer compelled the superior court to employ Rule 68's
more generous formula for calculating attorney's fees. We
conclude otherwise.
Rule
68's goal is to "encourage settlement and avoid
protracted litigation."[10] It allows a party before trial
to make an offer of judgment "in complete satisfaction
of the claim... with costs then accrued."[11] If the offer
is served less than 60 days after the date set for initial
disclosures, the offeree does not accept within 10 days, and
the ultimate judgment is "at least [5%] less favorable
to the offeree than the offer," then the offeree must
pay 75% of the offeror's reasonable and actual
attorney's fees.[12]The rule "creates a financial
incentive for settlement by 'encourag[ing] parties to
assess their litigation risks carefully and penaliz[ing] an
offeree's rejection of a reasonable settlement
offer.' "[13]
But
"[n]ot all settlement offers trigger Rule
68."[14] An invalid offer "may not be
considered in determining costs and attorney's
fees."[15] Apportionment difficulties are one
ground upon which a court may find an offer
invalid.[16] We have held that difficulties are
"intrinsic to cases involving unapportioned joint offers
because the offerees must agree . .. how proceeds are to be
divided."[17] "In determining whether a joint
offer may nonetheless be valid, we consider two factors: (1)
whether '[t]he settlement offer clearly indicated all
claims between the parties would be resolved if the offer
were accepted'; and (2) whether apportionment difficulty
actually exists."[18]Apportionment difficulties exist
"if [the offer] would leave unresolved serious disputes
that, absent settlement, would have to be resolved by a
jury."[19]
The
parties dispute only the second prong, whether
"apportionment difficulty actually exist[ed]
."[20] Kapolchok asserts the joint offer was
appropriate because Picarella's claims were purely
derivative in both the dental and legal malpractice cases,
and no apportionment difficulties existed between the husband
and wife, as they had accepted a joint offer for the dental
malpractice case. Kapolchok also contends that we are
obligated to remand because the court failed to specify any
basis for holding the offer invalid, hindering
Kapolchok's ability to contest the ruling.
We
disagree on both counts. Although the superior court's
decision did not explicitly state the basis upon which it
found the Rule 68 offer invalid, it need not have done
so.[21] Apportionment was the sole basis upon
which the parties litigated the offer's validity.
Contrary to Kapolchok's assertions, we see no reason to
remand for clarification.
We also
agree with the superior court that the offer was invalid. The
$ 1, 500 offer to Boiko and Picarella was a classic joint
offer: an offer of a lump sum to two offerees without
reference to apportionment.[22] Our past decisions recognize
the difficulties of apportioning offers and hold that such
difficulties "warrant a general exclusion of joint
offers from the penal cost provisions of Rule
68."[23]
Picarella
had a separate legal malpractice claim and was thus owed an
apportioned offer. It is irrelevant that Boiko and Picarella
were joint payees for the dental malpractice claim or treated
as a single client by Kapolchok. Picarella's original
loss of consortium claim in the dental malpractice lawsuit
being derivative does not bear on whether he had an
independent legal malpractice claim in this litigation.
Kapolchok formed a separate attorney-client relationship with
Picarella by obtaining his signature on the attorney-client
fee agreement and adding his loss of consortium claim to the
dental malpractice lawsuit. Duties individually owed to
Picarella flowed from the creation of that attorney-client
relationship in addition to those separately owed to
Boiko.[24] Because Picarella had a separate legal
relationship with and therefore a separate malpractice claim
against Kapolchok, Picarella was owed an apportioned offer.
We see
no grounds for deviating from the general rule against joint
offers under the facts of this case. Because we agree that
the Rule 68 offer was invalid, we affirm the superior
court's decision to calculate attorney's fees under
Rule 82.
B.
The Rule 82 Attorney's Fees Award Was Not An Abuse of
Discretion.
Rule
82(b)(2) provides that when a prevailing party recovers no
money judgment and the case is resolved without trial, the
court shall award the prevailing party 20% of its actual
attorney's fees. But Rule 82(b)(3) allows the court to
vary an attorney's fees award upon consideration of
certain enumerated factors as well as "other equitable
factors deemed relevant."[25]
We
review all Rule 82 attorney's fees awards for abuse of
discretion, [26] and "[a]n award constitutes an
abuse of discretion only when it is manifestly
unreasonable."[27]In the event of a variance, "legal
questions ... are reviewed de novo, while exceptions that
rely on factual findings are reviewed for clear
error."[28] The court enjoys "broad discretion
to award fees and to alter the amount it intends to
award."[29]
1.
Reduction of attorney's fees from 20% to 15%
In
determining whether varying an award under Rule 82 is
warranted, the superior court may consider "the
complexity of the litigation"[30] and "the
reasonableness of the numbers of attorneys
used."[31] It may also consider "the extent to
which a given fee award may be so onerous to the
non-prevailing party that it would deter similarly situated
litigants from the voluntary use of the courts,
"[32] as well as "other equitable factors
deemed relevant."[33]
Here
the court reduced the fee award from 20% to 15% "due to
the unreasonableness of paying two attorneys to defend what
appears to be a rather unremarkable attorney malpractice
case" brought by self-represented plaintiffs. This view
was compounded by Kapolchok not documenting the full amount
of fees sought, prompting the court to rely on a lower
estimate. The fee reduction was further motivated by the
court's policy concern that "a large fee award may
deter similarly situated plaintiffs from bringing similar
cases." The court noted that "[i]mposition of a
large fee award when a defendant attorney ultimately prevails
insidiously closes the doors ...