Diligent Review

The Tennessee Court of Appeals affirmed a defense verdict in a legal malpractice case brought against a Chattanooga firm

The appellants sued the appellee, a law firm, alleging that the law firm committed legal malpractice when it gave the appellants legal advice with regard to the tax implications of a stock sale. The law firm filed two motions for summary judgment arguing that the legal malpractice case was barred by the applicable statute of limitations. Both motions were denied when the trial court determined that a genuine issue of material fact existed. The case proceeded to a jury trial, and the jury found that the legal malpractice case was timely filed but that the law firm had not committed legal malpractice. Upon our diligent review of the record, we affirm.

The underlying representation

Nancy Sue Hawk and Billy F. Hawk, Jr., a married couple, were the sole shareholders of Holiday Bowl, Inc. (“Holiday Bowl”), a corporation that owned and managed two bowling alleys. After Mr. Hawk’s death, Mrs. Hawk decided to sell the business. Mrs. Hawk found a broker, Sandy Hansell, who specialized in bowling alley sales. Mr. Hansell agreed to assist Mrs. Hawk and the estate of Billy F. Hawk, Jr. (the “Estate”) with selling the assets of Holiday Bowl. Throughout the planning and closing of the asset sale, Mrs. Hawk and the Estate sought legal advice from the law firm of Chambliss, Bahner & Stophel, P.C. (“Chambliss”), in particular, attorney Wayne Thomas. Mr. Thomas had represented the Hawks for many years prior to Mr. Hawk’s death and was representing the Estate in ongoing probate proceedings. Mr. Thomas had limited experience with corporate transactions and sought assistance with the asset sale from other attorneys at Chambliss, including Kirk Snouffer, a tax attorney, and Mark Turner, a transactional attorney.

After the sale

On March 9, 2007, the IRS wrote to Mrs. Hawk, individually, to inform her that it was “in the process of examining” Holiday Bowl’s 2003 tax return and that Mrs. Hawk “may be liable” as a transferee of Holiday Bowl “for part or all of its potential tax liability under [Internal Revenue Code] Sec[tion] 6901.”

The client sought review of the significant tax penalty

In late 2009, the Hawk Parties filed suit in the United States Tax Court (the “tax court”) challenging the tax assessments, but ultimately lost. While Chambliss was not a party to the tax court proceedings, its legal advice provided to the Hawk Parties with respect to the MidCoast transaction was at issue in that case.

Suit for malpractice failed

Generally, “attorneys are not liable for mistaken opinion on a point of law that has not been settled by a court of highest jurisdiction, and on which reasonable attorneys may differ.” Schmidt v. Pearson, Evans & Chadwick, 931 S.W.2d 774, 779 (Ark. 1996) (collecting cases). The Hark Parties argue that the jury’s verdict “is not supported by any material evidence because the applicable tax law at the time Chambliss gave its advice had been settled by the appropriate authorities[.]” However, even one of the Hawk Parties’ expert witnesses conceded that in 2003, when Chambliss gave the advice at issue in this case, the law was unsettled with regard to how transferee liability would be applied in a case such as this one. Chambliss also put on three expert witnesses who opined that Chambliss’s 2003 actions in advising the Hawk Parties did not amount to professional negligence.

As the trial court noted in its order denying the Hawk Parties’ motion for new trial, “[t]his case came down to a battle of the experts.” Upon thorough review of the substantial record in this case, we find material evidence to support the jury verdict. Therefore, we cannot set it aside.

(Mike Frisch)