McKenna, Camille A.

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2001Survey of Rhode Island Law: Cases: Legal Malpractice

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Roger Williams University Law ReviewVolume 7 | Issue 2 Article 20Spring 20022001Survey of Rhode Island Law: Cases: LegalMalpracticeCamille A. McKennaRoger Williams University School of LawFollow this and additional works at: http://docs.rwu.edu/rwu_LRThis Survey of Rhode Island Law is brought to you for free and open access by the Journals at DOCS@RWU. It has been accepted for inclusion inRoger Williams University Law Review by an authorized administrator of DOCS@RWU. For more information, please contact mwu@rwu.edu.Recommended CitationMcKenna, Camille A. (2002) "2001Survey of Rhode Island Law: Cases: Legal Malpractice," Roger Williams University Law Review:Vol. 7: Iss. 2, Article 20.Available at: http://docs.rwu.edu/rwu_LR/vol7/iss2/20SURVEY SECTIONLegal Malpractice. Richmond Square Capital Corp. v. Mittle-man, 773 A.2d 882 (R.I. 2001). An attorney and his law firm com-mitted legal malpractice by failing to notify lender about unpaid-tax encumbrances on mortgaged property used to secure a loan,and this subsequently damaged the lender because it was forced topay back-taxes in order to maintain its collateral and priority as afirst position lender. Furthermore, any evidence of a settlementbetween the lender and a guarantor over the loan default wasinadmissible to disprove damages regarding the legal malpracticeclaim.FACTS AND TRAVELRichard Mittleman (Mittleman or defendants) and the lawfirm of Cameron and Mittleman (defendants) appealed from adamages judgment after a jury found them liable to their client,lender Richmond Square Capital Corporation (Richmond Squareor plaintiffs), for legal malpractice.' The plaintiffs retained the de-fendants for representation in connection with a loan to be made toParking Corporation of America (Parking), and to be secured bymortgages on several pieces of real estate including the ShepardBuilding.2 The alleged malpractice occurred when Mittleman as-sured the president of Richmond Square, Harold Schein (Schein),that Richmond Square would have a first position mortgage on theShepard Building property.3 At this point Schein believed that theShepard Building was free and clear of all encumbrances becausehe would not have made the loan if he knew there were outstand-ing taxes due and owing on the property.4 As a small business in-vestment corporation, Richmond Square had certain lending limitswhich were exceeded by adding the amount of unpaid taxes to theloan extended to Parking.5Shortly after the property's closing, Parking failed to make re-quired loan payments, and in December 1990, the plaintiffs re-ceived notice of a tax sale on the Shepard building.6 "Schein1. See Richmond Square Capital Corp. v. Mittleman, 773 A.2d 882, 883 (R.I.2001).2. Id.3. Id.4. Id.5. Id.6. Id. at 884.20021548 ROGER WILLAMS UNIVERSITY LAW REVIEW [Vol. 7:403testified that he was shocked to receive such notice because hethought all the taxes [had been] paid by the previous owner."7 Toavoid public auction, Richmond Square paid the 1989 back-taxesand in February 1991 instituted a foreclosure on the Shepardbuilding property, subsequently selling it.8 During the foreclosureproceedings, Richmond Square entered into a settlement withDavid Golden (Golden), the president of Parking, concerning theloan guaranty. 9 In exchange for releasing Golden from his guar-anty, he agreed not to contest the foreclosure, gave RichmondSquare several properties, and paid $40,000.10On December 17, 1993, Richmond Square filed a legal mal-practice action.1 Initially, the action was dismissed pursuant tothe statute of limitations, but the Rhode Island Supreme Court re-versed, holding that there was a question of material fact as towhen Richmond Square discovered the tax liens.12 If the plaintiffsdid not discover the validity of the tax liens until on or after De-cember 17, 1990, their claim was timely.' 3 The jury found thatRichmond Square did not learn of the tax liens until December 17,1990 at the earliest and, therefore, rendered a verdict of$127,182.16 in its favor. 14ANALYSIS AND HOLDINGOn appeal, the defendants contended that Richmond Squarefailed to prove its actual damages. 15 The defendants also assertedthat the trial justice erred in excluding evidence concerning thesettlement between Richmond Square and Golden that, if admit-ted, would have reduced or negated Richmond Square's damagesarising from the legal malpractice. 16 The defendants argued thatthe settlement documents would have helped the jury analyze thevalue of the consideration given by Golden to determine if thisamount was more or less than Golden's initial obligations under7. Id.8. Id.9. Id.10. Id.11. Id.12. Id.13. Id.14. Id. at 885.15. Id.16. Id.SURVEY SECTIONthe loan.17 Ultimately, the defendants asserted that without thesedocuments in evidence the jury was not in a position to determinewhether Richmond Square suffered any damages.' 8 In addition,defendants argued that Richmond Square was reimbursed for anydamages through the settlement agreement with Golden, and that,in spite of the back-taxes payment and the expenses of foreclosure,Richmond Square profited from the settlement. 19The plaintiffs asserted that the settlement documents were ir-relevant because they were speculative, did not have probativevalue, and were too far removed from the loan transaction at is-sue. 20 Furthermore, Richmond Square argued that it suffered afront-end cost ($79,493.34) by having to pay the taxes on the Shep-ard property in December of 1990.21The Rhode Island Supreme Court affirmed the judgment andheld that there was no abuse of discretion on behalf of the trialjudge.22 In this malpractice action, the plaintiffs have the burdenof proving that the defendants were the "but for" cause of plaintiffsdamages incurred in paying the back taxes.23 Here the court heldthat reasonable persons could conclude that Richmond Square suf-fered damages when it incurred an unforeseen expense in payingthe back taxes, and that Mittleman was negligent in failing to dis-cover these taxes before the closing date.24 The court furtherpointed out that regardless of the loan's fate, Richmond Squarewas forced to pay back-taxes to maintain its collateral for the loanto Parking.25Regarding mitigation, the court held that the trial judge didnot abuse his discretion by refusing to admit the settlement docu-ments.26 First, the settlement documents did not indicate that theproperties and other consideration covered the back taxes thatwere owed. 27 Furthermore even if the documents were specific as17. Id.18. Id.19. Id. at 886.20. Id.21. Id.22. Id.23. Id.24. Id. at 886-87.25. Id. at 887.26. Id.27. Id.2002] 549550 ROGER WILLIAMS UNIVERSITY LAW REVIEW [Vol. 7:403to the back taxes, they were inadmissible because the value of thesettlement would not have reduced the damages the plaintiffs in-curred in paying back taxes.28 This was an expense that the plain-tiffs had to pay regardless of the fate of the loan or any subsequentsettlement.29 Finally, the settlement documents did not containspecific values of the properties, thus, introduction into evidencewould have caused the jury to speculate impermissibly.30Overall, the trial judge could not have reduced the jury'saward because the evidence in the record did not specifically indi-cate that the value of the settlement with Golden exceeded theamount of the unpaid loan and covered or reduced the back-taxpayments. 31 Moreover, evidence of appraisals or other documentsconcerning the settlement properties' value would be barred by thecollateral source doctrine. 32CONCLUSIONThe defendants' failure to discover and notify the plaintiffs ofthe existence of back-taxes on the Shepard Building was legal mal-practice and the proximate cause of the front-end expense incurredby Richmond Square. There was no abuse of discretion in preclud-ing the admission of the settlement documents that were specula-tive and non-probative.Camille A. McKenna28. Id.29. Id.30. Id.31. Id. at 888.32. Id. The collateral source doctrine "'mandates that evidence of paymentsmade to an injured party from sources independent of the tort-feasor are inadmis-sible and shall not diminish the tort-feasor's liability to the plaintiff.'" Id. at 887(quoting Gelsomino v. Mendonca, 723 A.2d 300, 301 (R.I. 1999)).

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2001Survey of Rhode Island Law: Cases: Legal Malpractice

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