Opinion · Court of Appeals for the Tenth Circuit
Steiner Corp. v. Johnson & Higgins of California
Steiner Corp. v. Johnson & Higgins of Cal., 135 F.3d 684 (10th Cir. 1998)
- Type
- Opinion
- Court
- Court of Appeals for the Tenth Circuit
- Jurisdiction
- Federal
- Date
- 1998-01-13
- Topic
- general
How later courts describe this case
- holding that the accountant should not be absolved of the duty undertaken by him on his audit unless the plaintiffs negligence contributed to the auditor’s misstatement in his reports
- holding that the accountant should not be absolved of the duty undertaken by him on his audit unless the plaintiff’s negligence contributed to the auditor’s misstatement in his reports
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UNITED STATES COURT OF APPEALS
Tenth Circuit
Byron White United States Courthouse
1823 Stout Street
Denver, Colorado 80294
(303) 844-3157
Patrick J. Fisher, Jr. Elisabeth A. Shumaker
Clerk Chief Deputy Clerk
March 9, 1998
TO: ALL RECIPIENTS OF THE CAPTIONED OPINION
RE: 96-4044, Steiner Corp. v. Johnson & Higgins
Originally filed on January 13, 1998.
Revised and refiled on March 9, 1998.
The published opinion in this appeal has been revised and refiled. Specifically,
section “III A” of the opinion has been revised and is different from the opinion filed on
January 13, 1998. Also, appended to the revised opinion is an order addressing the petition
for rehearing.
Please find a copy attached for your convenience.
Sincerely,
Patrick Fisher
Clerk
By:
Keith Nelson
Deputy Clerk
F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
MAR 9 1998
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
STEINER CORPORATION, a Nevada
corporation,
Plaintiff-Counter-Defendant-
Appellant,
and
CAROL S. MCCORMICK, Administrator
of the Steiner Corporation Retirement
Plan, and STEINER CORPORATION
RETIREMENT PLAN, No. 96-4044
Plaintiffs-Counter-Defendants,
v.
JOHNSON & HIGGINS OF
CALIFORNIA, a California corporation;
DONALD F. REEVES and ROY J.
BERTOLDO,
Defendants-Counter-Claimants-
Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. No. 88-CV-410)
Peter W. Billings, Jr. (Jay B. Bell, John E. S. Robson and James F. Wood with him on the
brief), of Fabian & Clendenin, Salt Lake City, Utah, for Plaintiff-Counter-Defendant-
Appellant.
Robert A. Lewis of McCutchen, Doyle, Brown & Enersen, San Francisco, California
(William Carpenter of McCutchen, Doyle, Brown & Enersen, San Francisco, California,
and David A. Greenwood of Van Cott, Bagley, Cornwell & McCarthy, Salt Lake City,
Utah, with him on the brief), for Defendants-Counter-Claimants-Appellees.
Before KELLY, HOLLOWAY and BRISCOE, Circuit Judges.
HOLLOWAY, Circuit Judge.
Plaintiff Steiner Corporation, along with others not parties to this appeal, brought
this action against defendants in 1988 for professional malpractice and breach of contract.
Defendant Johnson & Higgins (sometimes referred to herein as J & H) is the actuarial
firm which handled aspects of plaintiff’s employee retirement plan. Defendants Reeves
and Bertoldo were the individual members of Johnson & Higgins responsible for the
work on plaintiff Steiner’s matters.
After a bench trial, judgment was entered in favor of plaintiff on its claim that
defendant negligently redrafted a section of plaintiff’s plan, but plaintiff’s primary claim
for professional malpractice was rejected. Both sides appealed. We affirmed in part,
reversed in part, vacated in part and remanded. Steiner Corp. Retirement Plan v. Johnson
& Higgins, 31 F.3d 935
(10th Cir. 1994), cert. denied,115 S. Ct. 732
(1995). In so doing
we directed that the merits of defendant Johnson & Higgins’ defenses of laches and
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contributory negligence, inter alia, be considered on remand because the district court’s
opinion before us then was silent as to these issues and they involved factual
determinations that we were unwilling or unable to make. Id. at 941.
On remand, in an unpublished Order on Remand of December 28, 1995, the
district court again ruled in defendants’ favor on plaintiff’s primary claim and entered
judgment in favor of defendants on their counterclaim for unpaid fees. Plaintiff appeals
the rejection of its malpractice claim against defendants, but has not appealed the
judgment in favor of defendants on the counterclaim.
I
Plaintiff’s appeal from the district court’s judgment focuses on the court’s holding
that plaintiff could not recover on its actuarial malpractice claim against the defendants
under Utah’s comparative negligence statute because plaintiff’s negligence was
comparatively greater than that of defendants. Order on Remand at 8. The following
summary is primarily based on the district court’s detailed findings of fact, made
following the bench trial which preceded the first appeal. Unpublished Findings of Fact
and Conclusions of Law of January 24, 1992. Neither party specifically takes issue with
any of these findings.
Plaintiff established an employee retirement plan (the Plan) in 1958. The Plan is
subject to ERISA, the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 29
U.S.C. §§ 1001, et seq., and is a “defined benefit plan” under the Internal
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Revenue Code. The feature of the Plan which is the focal point of this litigation is its
provision permitting a retiring employee to receive all of his or her benefits in a single,
lump sum payment as an alternative to the ordinary monthly payment of benefits.
Although the Plan provided that the lump sum benefit was to be calculated so as to make
it the actuarial equivalent of the monthly payment option, in fact this was never the case
prior to 1986. Instead, the formula developed for calculating the amount of the lump sum
benefit resulted in that option being more valuable than the monthly payment option, as is
described in more detail in our previous opinion. 31 F.3d at 937
. The formula was
created by Mr. F. J. Kane, who was plaintiff’s chief financial officer until his retirement
in 1984. Kane knew that the lump sum payment was more valuable than the monthly
payment option.
Beginning in 1977, plaintiff retained defendant Johnson & Higgins as the actuary
for the Plan, an arrangement which continued until 1988. One of the services performed
by defendants was to prepare an annual actuarial statement for the Plan, as required by
ERISA. Each annual statement included a valuation of the Plan’s assets and liabilities
and a calculation of the permissible range of employer contributions needed to maintain
solvency of the Plan. Although historically most retirees had chosen the more valuable
lump sum distribution, defendants continued each year to prepare the valuation of the
Plan on the assumption that retirees would choose the monthly payments. Consequently,
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the Plan valuations substantially understated the value of the Plan’s liabilities and the
level of contributions needed to maintain solvency.
Over the years there had been discussions between defendants and representatives
of plaintiff about the fact that the formula used to compute the lump sum benefit resulted
in that being a more valuable option. As market interest rates rose, the difference in value
of the two options became greater. Defendants specifically recommended in 1977 and
1978 that plaintiff restructure the formula to employ a fluctuating, market-based interest
rate to calculate the lump sum benefit, and thereby eliminate the disparity in the value of
the two options. Mr. Kane, acting for plaintiff, did not follow this advice.
Kane retired in 1984 and Kevin Steiner replaced Kane on July 1, 1984, as
plaintiff’s chief financial officer. Unlike Kane, Mr. Steiner did not know that the lump
sum benefit was more valuable than the monthly payment option. Order on Remand at 3,
Aplt. App. at 80. Also in 1984 or 1985, plaintiff became aware that the Plan would have
to be amended by October 31, 1985, to comply with the Retirement Equity Act and other
laws and regulations. The most significant change in the governing law required for the
first time that
a single formula for calculating optional benefits be selected and written
into the Plan. This was a new requirement in federal pension law -- that the
factors used to determine <actuarial equivalence’ of optional benefits should
become fixed and be written into the Plan.
Finding of Fact ¶ 24, Aplt. App. at 64. The new laws and regulations included a deadline
of October 31, 1985, for making all conforming amendments to the Plan.
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In February 1985, Kevin Steiner met for the first time with representatives of
Johnson & Higgins to discuss the Plan and the amendments which would have to be
made. Mr. Steiner was told at this meeting that the value of accrued benefits, the amount
reported on plaintiff’s annual financial statements, was calculated on the assumption that
all retiring employees would choose the monthly payment form of distribution. Mr.
Steiner asked if it would make a difference if instead the calculation were to be done on
the assumption that all retirees would elect the lump sum. He was told that this would
have to be calculated. Mr. Steiner requested that this calculation be done, and defendants
agreed to do so. More than once after this February meeting, Mr. Steiner followed up on
his request, eventually asking for a rough or “ballpark” estimate of liabilities based on the
assumption that all employees would elect to take the lump sum. Finding of Fact ¶ 28,
Aplt. App. at 66.
Defendants failed to provide plaintiff any information or comparative calculations
in response to these requests prior to the critical date of October 31, 1985. Id.
Instead,
defendants prepared amendments to the Plan which sufficed to achieve compliance with
the new requirements of the controlling law, but did so by incorporating the old formula
for lump sum options into the Plan document. Defendants did so without advising
plaintiff, as specifically requested, about the magnitude of the difference in the value of
the lump sum distribution versus the monthly payment option. Defendants did not advise
plaintiff of the corresponding under funding of the Plan since its inception due to having
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set funding levels on the unrealistic assumption that all retirees would elect to receive
monthly payments. Defendants did not inform plaintiff that, although there was a
difference of opinion on the matter, there was a possibility that the lump sum formula
could be changed before being incorporated into the Plan document, with significant
resulting savings. Id. at 67-68. This court’s opinion on the prior appeal herein found that
Steiner in fact could have changed “the Layered Formula to make the lump sum
equivalent to the annuity, and that J & H breached its duty by failing to provide this
information by October 31, 1985.” 31 F.3d at 941
.
In March 1986, defendants submitted the calculations which Kevin Steiner had
requested 13 months before. Defendants’ estimate of the value of accrued benefits for
1985, assuming retiring employees would elect the lump sum option, was some $9 million
greater than the value of accrued benefits estimated on the assumption that retiring
employees would choose to receive monthly payments.1 After plaintiff received this
report from Johnson & Higgins, the Plan was amended by the adoption of a new formula
to calculate the lump sum benefit, one which for the first time was calculated to make the
The district judge made this finding of fact:
1
In early 1986, defendants informed Steiner and provided calculations
that the value of accrued benefits for 1985 using the lump sum election
assumption would be $14,564,243.00 instead of $5,046,536.00 using the
annuity election assumption.
Finding of Fact ¶ 32, Aplt. App. at 68.
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lump sum option the actuarial equivalent of the alternative monthly distribution. If the
amendment had been made before October 31, 1985, or at least before new regulations
went into effect in January 1986, the amendment could have been made applicable to all
employees. As the district court found, however,
due to regulations in effect after October 31, 1985, the 1986 amendment to
the plan applied only to the prospective calculation of benefits. Mr. Steiner
indicated at trial that if [defendants] had submitted the requested new report
prior to October 31, 1985, Steiner would have adopted a Plan that would
have retroactively altered the retirement plan such that the lump sum would
be rendered the actuarial equivalent of the annuity benefit for all retirees
after October 31, 1985.
Order on Remand at 4, Aplt. App. at 81.
The district judge found, following the bench trial which preceded the first appeal,
that defendants should have known that plaintiff “might want to make a change in the
long time practice of continuing the differential in value of the benefit options.” The
judge further found that defendants’ failure to provide the requested information
“amounted to conduct below the standard of care in the industry and constituted
negligence on the part of J. & H.” Finding of Fact ¶ 31, Aplt. App. at 68. Plaintiff’s
primary claim in this action, and the only one with which we are concerned in this appeal,
is based on such negligence in not providing the requested information to plaintiff which,
it is claimed, would have enabled plaintiff to amend its formula for calculating the lump
sum benefit prior to the critical date of October 31, 1985, making the amended formula
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applicable to many more employees, with substantial resulting savings to plaintiff Steiner.
The district court originally held, however, that plaintiff had not suffered any
damages as a result of defendants’ negligence. The judge held, before the first appeal to
this court, that any change in the formula could not have affected employees whose
benefits had already accrued because the old formula had become a part of the Plan by
custom and practice. In the first appeal, we reversed this ruling and held that according to
the explicit language of 29 U.S.C. § 1054
(g)(2), the lump sum is an optional form of benefit, and that Steiner may be said to impermissibly reduce accrued benefits “only if it were to eliminate the lump sum.”31 F.3d at 940
(emphasis in original). Thus Steiner
could, with timely actuarial information and advice, have arguably made substantial
savings by such changes in the formula. We remanded for the district court to consider
causation and alleged damages from defendant J & H’s negligence, and other defenses to
the negligence claim, which the judge had originally found it unnecessary to decide.
On remand, the trial court received additional briefs and heard oral argument, but
no further evidence was presented. The judge made findings on the ultimate issues of
comparative negligence and causation, based on the underlying facts found after the
bench trial. The judge found that plaintiff Steiner was not entitled to damages because its
negligence exceeded that of defendants, barring recovery under Utah’s comparative
negligence statute, Utah Code Ann. § 78-27-38
(1996). In so holding, the judge cited
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pre-1985 actions by plaintiff Steiner, which he found to have been negligence that
contributed to Steiner’s injury. The judge further found that such negligence by Steiner
itself was comparatively greater than that of its actuary, defendant J & H, in its
contribution to the injury suffered when the Plan was not properly adjusted in 1985,
therefore barring recovery under Utah law. Order on Remand at 8, Aplt. App. at 85. The
judge rejected defendant J & H’s laches defense, finding there was insufficient evidence
of Steiner’s alleged intentional delay of the litigation so that the laches defense failed. Id. at 83
.
II
A
Plaintiff Steiner argues that the district judge erred in holding that Steiner’s own
pre-1985 negligence was comparatively greater than that of its actuary, defendant J & H,
barring Steiner from recovering for J & H’s negligence. Order on Remand at 8,
Aplt. App. at 85. The judge cited four points as negligence by plaintiff: plaintiff had
been aware at times before 1985 that the lump sum benefit was more valuable than the
monthly payment option; plaintiff itself (through Mr. Kane) had created the formula
which caused the disparity; defendants had discussed the disparity with representatives of
plaintiff and, in 1977 and 1978, had recommended altering the formula to adopt a
market-based interest rate factor to calculate the lump sum, advice that was not followed;
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and plaintiff had declined to follow defendants’ advice to have the 1984 Plan amendment
reviewed by independent legal counsel. Id.
Plaintiff Steiner maintains that in these findings absolving its actuary, defendant
J & H, of liability, the trial judge failed to perceive the proper standard of professional
care. The basic principle relied on by Steiner is that a professional holding himself out to
serve clients or patients is liable for his negligent performance of duties undertaken and
may not be relieved of such liability by his clients’ or patients’ actions in causing or
getting involved in the very conditions which the professional was employed and
undertook to treat or remedy. Otherwise the professional would not be held responsible
for performing the very duties he assumed. We agree with plaintiff Steiner on this
principle.
The principle applies logically to professionals performing accounting services, as
in Fullmer v. Wohlfeiler & Beck, 905 F.2d 1394
(10th Cir. 1990); to physicians, as in Sendejar v. Alice Physicians & Surgeon’s Hospital,555 S.W.2d 879, 885
(Tex. Civ. App.
1977, writ ref’d n.r.e.)2; or to attorneys, as in McLister v. Epstein & Lawrence, P.C., 934
2
Other medical malpractice cases with similar holdings include Jensen v. Archbishop
Bergan Mercy Hospital, 459 N.W.2d 178
(Neb. 1990); Cheek v. Domingo,628 F. Supp. 149, 151-52
(D. V.I. 1986) (patient’s negligence in becoming involved in a fight in which he was injured could not be basis for comparative negligence offsetting the fault of the treating physician, but patient’s post-treatment negligence in failing to obtain recommended follow-up treatment could be the basis for such a defense); and Ostrowski v. Azzara,545 A.2d 148, 155-56
(N.J. 1988).
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P.2d 844, 846 (Colo. App. 1996)3. Under this principle McLister held that the giving of a
comparative negligence instruction was error, stating persuasively that
Although comparative negligence is a defense to a claim of legal
malpractice in Colorado, see Scognamillo v. Olsen, 795 P.2d 1357
(Colo. App.1990), the client’s alleged negligence must relate to the injury
alleged to have been caused by the attorney’s negligence and must relate to
the attorney’s representation. . . .
Here, however, the court based the instruction on plaintiff’s failure
to obtain workers’ compensation insurance in the first instance. Although
the evidence may have been relevant to the issue of causation, we agree
with plaintiff that this conduct cannot serve as the basis for a comparative
negligence instruction.
Defendants knew that plaintiff was uninsured when they agreed to
represent him. Plaintiff’s failure to obtain workers’ compensation
insurance was therefore neither contemporaneous with, nor causally linked
to defendants’ negligence in handling his case. Thus, the giving of the
instruction was error. See 2 R. Mallen & J. Smith, Legal Malpractice
§ 20.2 (1996).
To allow the attorneys to rely on the negligence of the client
preceding the attorney’s engagement would be equivalent to allowing a
physician to defend a claim for malpractice based on the negligence of the
patient in not having sought treatment sooner.
934 P.2d at 846.
We are persuaded that the trial judge violated the basic principle of the
professional standard of care, which logically applies to actuaries, and was applied in
3
Other legal malpractice cases with similar holdings include Theobald v. Byers, 13 Cal. Rptr. 864
(Dist. Ct. App. 1961); and Conklin v. Hannoch Weisman,678 A.2d 1060, 1068-69
(N.J. 1996). See generally 2 Ronald Mallen & Jeffrey Smith, Legal Malpractice
§ 20.2 at p. 641 (4th ed. 1996) (to serve as a contributory negligence defense, “[t]he client’s
negligence must have a causal relationship to the lawyer’s error.”).
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McLister to attorneys, and as we recognized in Fullmer, which involved accountants.
There, as a Utah ruling, we rejected the notion of absolving the accountant of
responsibility for damage caused to his client on a theory of comparative or contributory
negligence by the client, holding:
Allowing such a defense would render illusory the notion that an accountant
is liable for the negligent performance of his duties. We hereby adopt the
rule enunciated by the National Surety and Shapiro courts, and articulated
by Hawkins and Menzel that the contributory negligence of the client is
only a defense where it has contributed to the accountant’s failure to
perform the contract and to report the truth.
905 F.2d at 1398
(quoting Lincoln Grain, Inc. v. Coopers & Lybrand,216 Neb. 433
,345 N.W.2d 300, 307
(1984)).
We held further in Fullmer that
Allowing either a comparative negligence or contributory negligence
defense would tend to “render illusory the notion that an accountant is liable
for the negligent performance of his duties,” which is a result rejected by
Lincoln Grain, 345 N.W.2d at 307
. . . . The basic reasoning was stated in
National Surety Corporation v. Lybrand, 9 N.Y.S.2d at 563: “[W]e see no
reason to hold that the accountant is not liable to his employer in such cases.
Negligence of the employer is a defense only when it has contributed to the
accountant’s failure to perform his contract and to report the truth.”
905 F.2d at 1398-99
. We remain convinced of the soundness of the professional liability
principle followed in National Surety which involved the accountant’s responsibility to
his clients.
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We are convinced that here we should observe the same parameter of professional
responsibility for the actuary, J & H, as we did for the similar professional accountant in
Fullmer:
[W]e are persuaded that the more fundamental principle is that the
accountant should not be absolved of the duty undertaken by him to one
reasonably relying on his audit unless the plaintiff’s negligence contributed
to the auditor’s misstatement in his reports.
905 F.2d at 1399
(emphasis added).
B
We turn now to defendant J & H’s arguments seeking to escape liability under the
professional malpractice principle discussed above.
At the outset we note that one argument of defendant J & H has been firmly
rejected in the controlling Supreme Court decision in Salve Regina College v. Russell,
499 U.S. 225
(1991), which the parties here have not recognized. J & H cites earlier decisions of this court and contends that great deference is owed to the view of the federal district judge here who is familiar with Utah law. Brief of Appellees at 18-19. That notion of deference to the local expertise of the district judge is clearly wrong since Salve Regina College was decided, and our consideration of the Utah law questions before us must be de novo. Salve Regina College firmly instructed us that “the obligation of responsible appellate review and the principles of a cooperative judicial federalism underlying Erie require that courts of appeals review the state-law determinations of district courts de novo.”Id. at 239
.
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One of defendants’ primary arguments against application of the principle of
National Surety and its progeny, including Fullmer, is that these cases have been rejected
by a number of courts. Defendants cite, inter alia, Halla Nursery v. Baumann-Furrie &
Co., 454 N.W.2d 905
(Minn. 1990); Scioto Memorial Hospital Ass’n v. Price Waterhouse,659 N.E.2d 1268
(Ohio 1996); and Capital Mortgage Corp. v. Coopers & Lybrand,369 N.W.2d 922
(Mich. App. 1985). We find these cases unpersuasive. For the most part, their analysis is essentially premised on noting that National Surety was decided under, and sought to avoid, the harsh rule of contributory negligence, concluding that under modern comparative negligence statutes, the holding of National Surety is unnecessary to permit a plaintiff to recover when its negligence has been relatively slight. We rejected this rationale in Fullmer,905 F.2d at 1398-99
. Our analysis above is not
based on the differences between comparative and contributory negligence but focuses on
the specific injury alleged by the plaintiff and the specific duties undertaken by the
defendants. We are convinced that under either a comparative or contributory negligence
regime, the acts of the client in getting into the circumstances, which he employs the
professional to remedy, may not be asserted to avoid liability for the professional’s own
subsequent negligence. Therefore, the cases rejecting National Surety are unpersuasive.
J & H argues further that the principle applied to accountants in Fullmer, National
Surety, Lincoln Grain, and other cases, should not apply to actuaries. The argument is
presented without any convincing rationale or supporting authorities defending the notion
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that actuaries should not be subject to the same principle. We are not persuaded by
J & H’s contention. It has been noted that “[t]he general law of malpractice has been
applied to actuaries in a manner similar to that of other professions.” William D. Hager
and Paul Noel-Chretien, The Emerging Law of Actuarial Malpractice, 31 Drake Law
Review 831, 842 (1982). The actuary holds himself out to the public as a specialized
expert, and he undertakes employment to perform his professional services in the same
manner as the other professionals -- lawyers, physicians and accountants, for example.
We have already recognized the principle of liability and the limitation on the
contributory or comparative negligence defense for sound reasons expressed in Fullmer,
which is now applied by us as part of the rubric of Utah law. Defendant J & H presents
no persuasive authority that Utah is prepared to go down another road, limiting the relief
that persons employing actuaries are entitled to under the professional malpractice rules.
Our decision in F.D.I.C. v. Ferguson, 982 F.2d 404
(10th Cir. 1991), is not to the contrary. In that case, the client’s negligence consisted of failing to perform tasks it had specifically undertaken to perform itself, in connection with the transactions on which the defendant attorney undertook to perform other discrete tasks, such as drafting documents.982 F.2d at 407
. Ferguson held only that comparative negligence may be a defense in
legal malpractice cases and was a proper defense in the circumstances presented there;
the court had no occasion to examine what limits might apply to the defense in other
circumstances. In connection with the comparative negligence defense, we held in
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Ferguson that in “asserting this defense, the attorney has the burden to prove that his
client was negligent in failing to act or disclose information to the attorney.” Id. at 407
(emphasis added). We see no support for J & H’s position in Ferguson, which actually
lends support to Steiner’s position.
Nor is the Utah case of Western Fiberglass, Inc. v. Kirton, McConkie and
Bushnell, 789 P.2d 34
(Utah Ct. App. 1990), contrary to this analysis. There the client did not keep the attorneys apprised of the negotiations for the subject transaction or of the closing, and ignored the lawyers’ advice to have counsel present at the closing of the transaction. Instead, the client “proceeded to finalize the deal on its own and relied on [the other party’s] counsel to complete the paperwork. As a result, [the client’s] financing statements were not filed and its security interest . . . was not perfected.”789 P.2d at 36
.
Thus, the actions of the client which formed the basis for the comparative negligence
defense were not the very subject for which the client had sought legal representation, and
the client effectively precluded the attorneys from undertaking the tasks which could have
prevented the loss, much like the client in Ferguson. Western Fiberglass is not
inconsistent with our analysis of the professional’s responsibility.
An analogy to the facts of the instant case may be helpful. Suppose that plaintiff
had consulted attorneys regarding the legal requirements for its employee retirement plan
under ERISA and the Internal Revenue Code. Suppose further that the plaintiff had
negligently set up the plan originally without following legal advice. We think it beyond
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argument that if the attorneys undertook to bring the plan into compliance with the law,
but failed to do so due to failure to exercise the level of professional care of an ordinarily
prudent attorney practicing in this area of the law, the client’s prior negligence would not
be a shield against the attorney’s liability, although it would be relevant to determine the
nature and extent of the injury, and the damages available. Because of the way that the
client’s injury is defined in our hypothetical, the client’s prior negligence could not have
caused the injury.4
We believe that the same principles must apply to the actuary defendants in the
circumstances presented here. We hold that plaintiff Steiner’s negligence, found by the
trial judge, in setting up the Plan and in not following previous advice to restructure the
formula for computing the lump sum, may not be asserted to shield the defendant actuary
from its liability for subsequent negligence in performing its professional duties. The
district judge specifically found that defendants should have known that plaintiff might
want to restructure the formula in 1985. The judge also found that Kevin Steiner at a
February 1985 meeting with representatives of J & H requested an analysis from the
defendants as to the magnitude of the difference of the cumulative lump sum benefits
available to participants in the Plan under the formula the plaintiff had been using as
compared to the revised formula that defendants had previously recommended. The
4
In Harline v. Barker, 912 P.2d 433, 439-42
(Utah 1996), a legal malpractice action,
summary judgment for the defendant attorney was proper because under the facts, the
attorney’s conduct could not have caused the injury.
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judge further found that Mr. Steiner requested defendants to make those calculations and
the J & H representatives agreed to do so. Finding of Fact ¶ 27, Aplt. App. at 66. Steiner
followed up more than once after the February 1985 meeting, asking for a “ballpark
estimate” of liabilities based on the assumption that all the employees would elect a lump
sum benefit. Defendants failed to provide the information before October 31, 1985. Id.
These failures were specifically found to be conduct below the standard of care in the
industry and constituted negligence by J & H. Id. at 68.5
In these circumstances, the injury was the loss of the opportunity to change the
formula, and we hold that the plaintiff’s prior conduct is not a defense for the defendants’
failure to perform the professional tasks it undertook. The only negligence on plaintiff’s
part found by the trial judge which was temporally concurrent with defendants’
negligence was the failure to consult an independent attorney. However, defendants have
not suggested how that negligence could have contributed to plaintiff’s injury, which was
caused by defendants’ failure to provide the actuarial information necessary for plaintiff
to evaluate the true exposure of the Plan and the adequacy of its funding.
5
Although the district court found that plaintiff, through officers such as Kane, had
always known that the lump sum benefit was more valuable to a retiring employee than the
monthly installment payout, the judge did not find, and nothing in his findings suggests,
either that plaintiff knew the cumulative magnitude of the difference for the Plan as a whole
or that plaintiff had the ability to estimate the cumulative effect by actuarial methods. In any
event, the material point is that, according to the district judge’s findings, defendants
specifically agreed to make the calculations but failed to do so within a reasonable time.
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In sum, we hold that the trial judge erred in barring recovery by Steiner for the
negligent failure of J & H to perform the professional duties it agreed to undertake for
Steiner. Order on Remand at 8, Aplt. App. at 85. The basis for the comparative
negligence finding against Steiner was wrongly grounded on Steiner’s prior acts that had
placed it in the difficulty which J & H specifically undertook to analyze and advise upon.
III
A
We now proceed to consider alternative grounds for affirmance urged by
defendants. First, defendants assert that plaintiff has suffered no injury. Defendants
contend that this is so because when plaintiff amended the Plan in 1986 by revising the
formula for calculating the lump sum option, after defendants had belatedly responded to
Kevin Steiner’s request for information, plaintiff could have made the amended formula
fully retroactive, as the panel in the previous appeal held could have been done had the
amendment been made prior to October 31, 1985. Plaintiff contends, inter alia, that this
argument is contrary to the defendants’ stipulations in the district court.6 We do not think
that defendants can be said to be estopped from raising this argument, nonetheless,
because the argument is based on this court’s decision in the previous appeal. We do not
agree with defendants’ interpretation of that decision, however.
In the pretrial order the parties agreed that after October 31, 1985, the formula could
6
not have been changed to have any retroactive effect. Pretrial Order, ¶ M, Aplt. App. at 46.
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The gist of defendants’ argument is that the previous panel’s holding meant that
plaintiff could have revised the formula in any way it wished “both before and after” the
formula was incorporated into the Plan by the amendments made on October 31, 1985.
We disagree with this reading of the previous panel’s opinion. We have very carefully
studied that opinion and have particularly noted the reference to October 31, 1985, as the
“critical” time, 31 F.3d at 940
, and numerous similar references throughout the opinion.
We conclude that the previous opinion cannot be read as defendants advocate. We
conclude, instead, that the holding in the first appeal, which is now the law of the case,
was that the lump sum formula could have been revised to have retroactive effect if, but
only if, that revision had been effected by October 31, 1985.
Accordingly, we reject defendants’ argument that plaintiff has suffered no injury.
B
Defendants advance two arguments addressed to causation. First, defendants
contend that the district court’s finding that plaintiff’s negligence was the predominant
cause of the injury is an implied finding that defendants’ conduct did not cause the injury,
and that this finding cannot be overturned unless clearly erroneous. The district court
found “that J&H’s negligence was at least a partial cause of Steiner’s failure to change
the actuarial formula in the Plan.” Aplt. App. at 82. However, the judge further found
that “Steiner’s own negligence was the dominant cause.” Id.
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On this record and our legal analysis, we hold that the district court’s finding that
plaintiff’s own negligence was the “predominant cause” of its injury must be set aside as
clearly erroneous. This was based on an erroneous view of the law, erroneously
permitting Steiner’s pre-1985 acts to serve as grounds of comparative negligence. As we
have discussed, the negligent acts identified by the district judge were improperly
determined to be the basis for the comparative negligence defense because those acts did
not “relate to the injury alleged to have been caused by the [professional’s]
negligence. . . .” McLister, 934 P.2d at 846.
Defendants also assert that plaintiff failed to prove that defendants’ negligence
caused the injury. This argument is basically an attack on the sufficiency of the evidence.
Defendants do not specifically take issue with any of the district court’s findings, but
instead urge, in essence, that plaintiff never proved that it would have acted to avoid the
injury, had defendants performed their undertaking to provide the requested actuarial
information and advice in a timely fashion. There was at least a substantial factual
showing by Steiner disputing defendants’ position on this point. Our prior opinion noted
that Mr. Steiner testified at trial that if J & H had submitted the requested calculations
before October 31, 1985, then Steiner would have adopted a new formula that would have
retroactively affected retirees’ benefits such that the lump sum would have been equal to
the annuity benefit for anyone retiring after October 31. 31 F.3d at 938
.
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We conclude that the prudent course is to leave this issue of causation of injury for
the district judge to address in the first instance on remand, along with his determination
of damages.
C
Defendants contend that plaintiff’s claim should be barred by laches. They claim
that plaintiff deliberately delayed filing suit until after Mr. Kane had died, allegedly
because plaintiff knew that Kane’s testimony concerning his knowledge about the value
of the lump sum option would have been damaging to plaintiff’s case. The defense fails
as a matter of law. Under Utah precedent, limitations but not laches, govern the
timeliness of an action at law like this. DOIT, Inc. v. Touche, Ross & Co., 926 P.2d 835, 845
(Utah 1996) (citing United States v. Mack,295 U.S. 480, 489
(1935)). DOIT rejected
a laches notion under circumstances involving the death of one witness and dispersal of
others -- circumstances like those relied on by J & H here.
D
Finally, defendants argue that the judgment should be affirmed because
contributory negligence, not comparative negligence, should control. Under the
traditional common law doctrine of contributory negligence, of course, any fault on the
part of the plaintiff which led to the injury would bar recovery, even if defendants’ fault
were much greater.
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Defendants base their argument on the wording of the comparative negligence
statute which was in effect in Utah from its enactment in 1973 until 1986, after the events
on which plaintiff’s claim is based. That statute provided, in pertinent part:
Contributory negligence shall not bar recovery in an action by any person or
his legal representative to recover damages for negligence or gross
negligence resulting in death or injury to person or property, if such
negligence was not as great as the negligence or gross negligence of the
person against whom recovery is sought, but any damages allowed shall be
diminished in the proportion to the amount of negligence attributable to the
person recovering.
Utah Code Ann. § 78-27-38
(repealed 1986) (emphasis added). From the emphasized
language, defendants argue that the statute does not apply to this action, in which
damages are sought for economic injury only.
Defendants have cited no Utah case construing the particular language on which
they rely, and plaintiff made no substantive response to this argument in its reply brief,
only remarking that the argument “merits no response.” Defendants’ suggested
construction of the statutory language appears plausible, but we conclude that we need
not determine the scope of this repealed statute because under our analysis it is immaterial
whether comparative or contributory negligence principles apply. As we have explained,
none of the instances of negligence by plaintiff which were identified by the district judge
could have contributed to the injury for which plaintiff seeks to recover. Accordingly,
even if we were to apply contributory negligence, rather than comparative negligence, our
result would be the same.
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Conclusion
Accordingly, we REVERSE the district court’s judgment and findings rejecting
the plaintiff Steiner’s malpractice claim against defendants and REMAND for a
determination, consistent with this opinion, of causation of injury to plaintiff and the
damages, if any, sustained by plaintiff Steiner on that claim, and for entry of judgment in
accordance with those determinations. The judgment in favor of defendants on their
counterclaim for fees was not appealed and is not disturbed.
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UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
STEINER CORPORATION, a Nevada
corporation,
Plaintiff-Counter-Defendant-
Appellant,
and
CAROL S. MCCORMICK, Administrator
of the Steiner Corporation Retirement
Plan, and STEINER CORPORATION
RETIREMENT PLAN, No. 96-4044
Plaintiffs-Counter-Defendants,
v.
JOHNSON & HIGGINS OF
CALIFORNIA, a California corporation;
DONALD F. REEVES and ROY J.
BERTOLDO,
Defendants-Counter-Claimants-
Appellees.
ORDER ON PETITION FOR REHEARING
Filed March 9, 1998
Before KELLY, HOLLOWAY and BRISCOE, Circuit Judges.
On consideration of defendants-appellees’ timely petition for rehearing, the court
has determined that the opinion filed herein on January 13, 1998, was in error in one
respect. In their brief, defendants argued as an alternative basis for affirmance that
plaintiff/appellant Steiner had suffered no injury. (See part IIIA, supra.) In part IIIA of
the opinion as filed on January 13, 1998, we stated that appellees had failed to show that
they had raised this issue in the district court. This was wrong. Appellees had cited in
their brief to the portion of the record showing that the issue had been raised below.
Accordingly, we grant the petition for rehearing in part, and we have revised part IIIA.
We have removed the erroneous statement that the issue had not been shown to have been
raised below and instead have addressed the issue on its merits.
In all other respects the petition for rehearing is denied. The clerk is directed to
append this order to the revised opinion filed today and to cause it to be published along
with that opinion.
ENTERED FOR THE COURT
Patrick Fisher
Clerk
By:
Keith Nelson
Deputy Clerk
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