This is not a long-term care case. Sanctions were awarded against the Plaintiff’s attorney for improperly asserting a direct liability claim against the President of a corporation.
Barnhill, acting as counsel for a builder, filed suit against a roofing products manufacturer, alleging defective roofing shingles were installed in a home. The builder sought to compel the manufacturer’s participation in repairing over 400 homes with similar problems. Most claims were dismissed on summary judgment, but a jury awarded $1 million in damages on the remaining claims. The verdict was vacated by a federal magistrate, affirmed on appeal in Jerry’s Homes v. Tamko Roofing Prods, Inc., 40 F. App’x 326 (8th Cir. 2002).
Subsequent to the dismissal of the federal case, Barnhill filed a class action in State court against Tamko and its President, David Humphreys. The allegations included (1) breach of express warranty, (2) breach of implied warranty, (3) fraudulent misrepresentation, (4) negligent misrepresentation, (5) rescission due to impermissible liquidated damages, (6) rescission due to unconscionability of express warranty, and (7) violation of a Missouri statute prohibiting unfair business practices. The petition alleged Humphreys directed and controlled Tamko, making no distinction between them. The sole basis for the direct claim against Humphreys appears to be his alleged control.
A class was certified prior to ruling on Defendant’s motion for summary judgment. An interlocutory appeal was taken to the Supreme Court where the Court ordered the district court to rule on the summary judgment motion. Subsequently, all claims of Jerry’s Homes were dismissed (res judicata from the federal case) and all claims other than fraudulent misrepresentation were dismissed. Later, the remaining claims were likewise disposed of on summary judgment.
Humphreys filed a motion for sanctions against Plaintiffs and their attorney, Barnhill. The court declined to award sanctions against Plaintiffs, but found that Barnhill violated Iowa Rule of Civil Procedure 1.413. In doing so, the trial court found:
The major exception to the rule of independent corporate identity is the doctrine of ‘piercing the corporate veil.’ The doctrine is not at issue here. Barnhill does not claim that there was ever any basis in fact or law for ignoring Tamko’s separate corporate existence. Rather, the sole basis upon which she seeks to justify all of the claims asserted against Humphreys is that corporate officers are personally liable for the torts they commit even if they are acting on behalf of their corporation. The very serious problem with this argument at the outset is that only two of the five claims asserted in the original Petition, and of the seven claims asserted in the Petition as finally amended, are tort claims. . . . It is a violation of Rule 1.413 for an attorney, without explanation, to assert a breach of contract claim against a corporate officer where only the corporation is a party to the contract.
After finding that Barnhill’s pleadings and other documents were confusing, convoluted and contradictory, the court sanctioned Barnhill in the amount of $25,000. The appellate court agreed there was no basis in law or fact for asserting a direct liability claim.
On appeal, the court stated that the factors to consider in determining whether an attorney made a reasonable inquiry into the law before asserting a claim include: (1) the amount of time that was available to the signer to research and analyze the relevant legal issues, (2) the complexity of the factual and legal issue in question, (3) the clarity or ambiguity of existing law, (4) the plausibility of the legal positions asserted, (5) the extent to which counsel had to rely upon other counsel to conduct the legal research and analysis underlying the position asserted, (6) the resources reasonably available to the signer to devote to the inquiry, and (7) the extent to which the signer was on notice that further inquiry might be appropriate.
The court noted that Barnhill had ample time to perform research and that she did not allege reliance on anyone else. She also deposed many of the witnesses. There was no claim for piercing the corporate veil and the law is clear that a corporation is responsible for its own contracts. There was no tort claim alleged and the breach of warranty claims did not arise as tort claims since they related to suitability and quality; no injuries were alleged.In reviewing each of the additional claims, they were similarly defective leading the court to affirm the sanctions order below.
Although many plaintiffs in nursing home cases assert direct liability claims, this case will have limited impact on them since nursing home claims are tort claims. Still, it demonstrates the common sense rule that pleadings must be supported by facts. Obviously, the best situation is to have sufficient facts prior to filing to demonstrate a good faith basis for a direct liability claim. Here, it appears as though Barnhill had no pre-filing basis for the direct liability claim and failed to establish one in discovery. Research memorandum showing that Barnhill had considered the court’s concerns and citing legal authority supporting the claims might have resulted in a denial of sanctions, but apparently none were produced.
Decided October 24, 2007
