Boiko v. Kapolchok

          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 ...