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PIZEL v. ZUSPANN

July 13, 1990.

HERBERT PIZEL, et al., Appellants/Cross-Appellees,
v.
EUGENE P. ZUSPANN, et al., Appellees/Cross-Appellants.



The opinion of the court was delivered by

This is a legal malpractice action brought by the potential beneficiaries of an inter vivos trust of Charles Pizel, deceased, against the defendants, attorneys Eugene P. Zuspann and B.E. Whalen.

Prior to trial, defendant Zuspann's motion for summary judgment was granted. Plaintiffs appeal this decision. The claims against defendant Whalen proceeded to a seven-day jury trial. The jury assessed fault at 60% to the appellants and Charles Pizel, 35% to defendant Whalen, and 5% to defendant Zuspann. Damages of $204,550 were awarded to appellants, which were reduced to the percentage of fault of Whalen, resulting in a judgment totaling $71,592.50. The trial court overruled plaintiffs' post-trial motions, from which plaintiffs appeal. The defendants cross-appealed the district court's ruling that nonclients may sue for negligence and that the claims were not barred by the statute of limitations. This court granted defendants' motion to transfer to the Supreme Court for final disposition pursuant to Supreme Court Rule 8.02 (1989 Kan. Ct. R. Annot. 39) on March 27, 1989.

  Charles Pizel was a single man who owned and farmed over 1,760 acres of farm land in Sherman County, Kansas. He died in April 1979. The appellants here are three nephews of Charles

[247 Kan. 56]

      Pizel. Allen lives in Colorado, where he owns and farms 2,700 acres of land. Allen's brother, Wilfred, also known as Bill or Billy, died after Charles and after the trust Charles created had been set aside by the Court of Appeals. Herbert, or Herb, is a farmer living in Kansas and the cousin of Allen and Wilfred.

  Herbert Pizel had seven brothers and sisters, who were also nieces and nephews of Charles Pizel, but who were not mentioned in Charles' trust. Along with Herbert, they were named as residuary beneficiaries in Charles' will. These seven brothers and sisters sued Herbert, Allen, and Wilfred to quiet title to the land contained in the trust and won in Pizel v. Pizel, 7 Kan. App. 2d 388, 643 P.2d 1094, rev. denied 231 Kan. 801 (1982). The land in the trust was sold, and the proceeds were divided among the residuary legatees.

  Eugene P. Zuspann is an attorney at law who has practiced law in Kansas since October 1939. For several years prior to 1962, Zuspann did Charles' taxes. In late 1961 or early 1962, Charles went to Zuspann to have him draft a contract of sale to transfer his 1,760 acres of land to Allen and Wilfred, who accompanied Charles. At this first meeting, Zuspann suggested a trust to accomplish what Charles wanted and provided a form on revocable trusts for Charles to read. Charles met with Zuspann several times over the next two months to discuss and prepare the trust, with Zuspann explaining that Charles would be deeding his property away to the trustees. Zuspann advised Charles that the trust could be canceled at any time to get the land back. Charles signed the trust on May 23, 1962. The same day, Charles executed a will and a deed conveying all his real estate to the trust. At that time, Zuspann believed Charles understood what he was doing and that he intended to create a trust. Zuspann represented Charles in this matter, not Allen or Wilfred. Zuspann believed a potential conflict of interest existed in advising Allen or Wilfred about their rights under the trust.

  The trust named Charles, Allen, and Wilfred as trustees. Zuspann explained to Charles and Allen that the trustees owned the property, should manage it, and had the right to deal with the property as owners. No one, including Charles, ever asked Zuspann to change the trust after it was executed in 1962.

[247 Kan. 57]

     

  In 1962, Zuspann was involved in a law partnership with B.E. Whalen. Whalen was not involved in the preparation of the trust or estate plan or will in 1962. Whalen began representing Charles in the early 1970s. When he took over as Charles' lawyer, Whalen believed Allen, Wilfred, and Charles understood that the land was in trust, that the income from the land went to Charles, and that they had responsibility as trustees to take care of the land. The trust had been in effect for ten years and Whalen assumed Allen and Wilfred knew of their roles as trustees because they were involved in running the land and helped Charles with his affairs. Based upon his experience with Zuspann, Whalen believed the trust and the duties of the trustees had been explained to Charles. About 1972, Charles indicated to Whalen his belief that Allen, Wilfred, and Herb were in charge of the land. When Whalen, after looking at the trust documents, told Charles that Herb was not involved, Charles indicated his desire to have Herb named a trustee. Whalen prepared an amendment to the trust that included Herb as a trustee, and he discussed the proposed amendment with Charles. This was Whalen's first work on the trust and estate planning matters. Whalen met with Charles, Herb, Allen, and Wilfred and explained the amendments to the trust and the new deed needed to reflect Charles' desire to include Herbert as a trustee. The instrument amending the trust was signed on June 10, 1975, by Charles, Allen, and Herb, and later by Wilfred.

  At the time the trust was amended, Whalen believed Herb knew the duties of a trustee because he had been with Charles on many occasions and because he was a real estate owner, appraiser, and expert witness in condemnation cases. Charles had told Herb about the trust before it was amended, and Herb received copies of the amended documents that had been signed on June 10, 1975. Whalen believed Charles understood the trust and the amendment. Whalen believed Allen and Wilfred had been operating as trustees for 13 years. On many occasions, Charles told Whalen he wanted the trust kept secret because he feared the reaction from Herb's brothers and sisters. Charles instructed Whalen not to record the deeds until after his death. Allen and Herb were also aware that Charles wanted to keep the trust secret.

[247 Kan. 58]

     

  After the trust was amended, Charles' mental and physical condition deteriorated. In the fall of 1976, Whalen wrote Herb, Allen, and Wilfred, asking them to schedule an appointment to discuss the trust and Charles' affairs. Whalen was considering what would need to happen if Charles became incompetent. The trustees did not come to see Whalen prior to Charles' death. Charles entered the hospital in 1978 and remained there until he died in April 1979.

  Whalen recorded the deeds to the trust land after Charles died. Allen and Herb farmed the land from 1980 until August 1982. They received $69,000 in income. Suit was filed by Charles' other heirs in August 1980. In his deposition in the trust lawsuit, Allen stated that he, Herb, and Wilfred had done nothing as trustees before Charles died and that he did not think the trust took effect until after Charles' death, even though Allen had been a named trustee and had worked the land for 18 years. The trial court invalidated the trust in February 1981, finding that Charles treated the land as if it were his own, that the trustees denied doing any acts as trustees, and that the trustees testified that Charles intended the trust to arise after his death, when their duties would begin. See Pizel v. Pizel, 7 Kan. App. 2d at 396.

  Under the trust agreement drafted by Zuspann in 1962, 1,760 acres of land were transferred to Charles, Wilfred, and Allen as trustees. Charles was entitled to income from the land during his life and was required to pay taxes on it. The income from the land, which consisted of crops and agricultural program payments, averaged $3,590.55 per year from 1962 to 1978. When Charles died, two trusts would be created — one for Wilfred and one for Allen. Neither Allen nor Wilfred had the right to demand a distribution from the trust, and only a disinterested trustee, in his uncontrolled discretion, could approve such a transfer. When Allen and Wilfred died, their children would receive the property of their trusts per stirpes. If neither had children, the assets returned to the intestate heirs of Charles.

  Whalen prepared an amendment to the trust that was executed on June 10, 1975. It substituted Herb for Charles as a trustee and created three trusts, instead of two, upon Charles' death. Other substantive provisions of the trust were not changed.

[247 Kan. 59]

     

  Plaintiffs called Robert Groff, a Topeka lawyer, as an expert witness. He testified that, during Charles' lifetime, the deed to the trust should have been recorded or the deed should have been delivered to someone other than the lawyer, tax returns should have been filed for the trust, and accounts should have been established at banks and grain elevators in the trust's name. According to Groff, a lawyer who sets up a trust has an ongoing duty to see that the trust is functioning properly. The trust agreement can be viewed as a contract where Allen, Wilfred, and then Herb agreed to care for the property as stated in the agreement. Whalen's representation of Charles would potentially conflict with the interests of Herb, Allen, and Wilfred. Groff agreed that the testimony of the trustees regarding their belief that no trust existed prior to Charles' death was considered by the Court of Appeals in affirming the decision finding the trust did not exist.

  Another lawyer, Donald Horttor, testified on behalf of defendants. Horttor believed Zuspann had acted properly when preparing and executing the trust in 1962. According to Horttor, unless a client asks questions, a lawyer can assume the client understands documents he or she is asked to read and sign. Horttor noted that a lawyer's correct creation of a trust can still be invalidated if the creator does not follow through. Horttor also noted that the lawyers represented Charles and not Allen and Wilfred. A potential conflict of interest existed between the grantor, Charles, and the trustees. The defendants also called Professor John Kuether of Washburn Law School as an expert witness. He expressed his opinion that the decision in Pizel changed prior law that had indicated an attorney could rely on a statement in the trust document to establish the trust's intent. Professor Kuether concluded Whalen had no direct duties to Herb, Allen, and Wilfred as trustees because of the potential conflict with his duties to his client, Charles. Additional facts will be mentioned where necessary to determine the issues raised in this appeal.

  We first consider whether the trial court erred in granting Zuspann's motion for summary judgment. In granting the summary judgment motion, the trial court made the following additional findings of fact. In September 1975, Zuspann and Whalen dissolved their law partnership and Zuspann left the firm. The

[247 Kan. 60]

      deeds and trust instruments remained with Whalen. On January 11, 1979, Whalen prepared a codicil to Charles' last will and testament, which was executed that day. This added Herb as a beneficiary to the will to receive certain livestock and farm equipment. Charles died April 24, 1979.

  The court also found no evidence that Zuspann did legal work for Charles from September 1975 until Charles' death in April 1979. After Charles' death, the deeds were recorded. The residuary beneficiaries under Charles' will challenged the validity of the inter vivos trust. The trial court and the Court of Appeals held that no valid inter vivos trust existed because the deeds to the trust were never recorded, nor put beyond the control of the grantor, and because the grantor was the only person who dealt with the land during his lifetime and never took any steps to indicate that a trust existed. Pizel v. Pizel, 7 Kan. App. 2d at 396-97.

  The trial court concluded that appellants failed to state a legal malpractice claim against Zuspann because he had ceased to represent Charles and was replaced by other counsel before the opportunity to activate the inter vivos trust ended. The court noted that this legal malpractice claim involved the failure to advise the trustees of their duties, the failure to record a deed or otherwise put the deed out of the control of the grantor, and the failure to advise the client of the necessity of having the trustees take control of the trust res during Charles' lifetime if a valid trust existed, including filing tax returns in the name of the trust. Any of these events could have occurred at any time between Zuspann's departure from the law practice in September 1975 until Charles' death in April 1979. During this time, Charles was represented concerning his estate by attorney Whalen. The court stated:
"This is particularly so since the deeds and Trust instruments had in effect become a part of the legal file of B.E. Whalen, not one of the files which Zuspann took with him upon his departing the law practice in 1975. In effect, Zuspann resigned and Whalen took over during a period of time when no damage had occurred and no cause of action had accrued."
  To support its decision, the trial court relied upon Knight v. Myers, 12 Kan. App. 2d 469, 748 P.2d 896 (1988). In that case, when the Laukalas sued the Knights for nuisance, the Knights

[247 Kan. 61]

      filed, among other things, a pro se "countersuit." Subsequently, the Knights hired attorney Myers to represent them. Myers failed to obtain proper service on the "countersuit" and it was eventually dismissed. Myers terminated his employment with the Knights on December 1, 1981, and formally withdrew from the two cases in which he represented the Knights on December 14, 1981. Within the next year and a half, the Knights were represented by at least two other attorneys. At the time Myers withdrew, the Knights probably had until July 8, 1983, to file their countersuit before the statute of limitations ran. The court concluded that Myers could not be held liable for failing to file an action prior to the expiration of the statute of limitations because he had ceased to represent the Knights and was replaced by other counsel before the statute ran. 12 Kan. App. 2d at 477.

  Although this action did not involve failing to file a particular kind of lawsuit before the statute of limitations ran, the trial court found the holding in Knight v. Myers controlled. Zuspann's resignation from the law firm in September 1975 and Whalen's assumption of activity on the file, in effect, resulted in Zuspann's withdrawal from representation of Charles. Steps needed to assure creation of the inter vivos trust were possible until Charles' death in April 1979.

  We do not agree with the trial court that Knight is analogous to the present case, nor do we find it controlling. As appellants correctly note, this case is distinguishable from Knight v. Myers because, to carry out the terms and conditions of his employment during his representation of Charles, Zuspann had a continuing duty to assure that Charles' intent to pass the land to his nephews was realized. Zuspann's alleged failure to adequately advise Charles of the steps needed to effectuate the trust constituted a special obligation that was continuous in nature and that resulted in injury to Charles and his intended third-party beneficiaries. More importantly, in Knight, attorney Myers committed no act of negligence prior to terminating his representation of Knight. The attorneys who subsequently represented Knight had ample opportunity to file the action prior to the expiration of the statute of limitations. The only act of negligence was by the subsequent attorneys for failing to file the action in time. In the instant case, plaintiffs allege various acts of negligence by both Zuspann and

[247 Kan. 62]

      Whalen. The mere fact that Whalen subsequently represented Charles does not relieve Zuspann of liability for his acts of negligence prior to the termination of his attorney-client relationship with Charles. The fault of each attorney, if any, is for the jury to ...


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