Great American Ins. v. M. Darren O'Quinn

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 05-3622
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Great American Insurance *
Company; Ohio Casualty Insurance *
Company, doing business as Ohio *
Casualty Group, *
*
Plaintiffs-Appellants, *
*
v. *
* Appeal from the United States
Dover, Dixon Horne, P.L.L.C; * District Court for the
* Eastern District of Arkansas.
Defendant, *
*
*
M. Darren O'Quinn; David A. Couch; *
Dover & Dixon, P.A., *
*
Defendants-Appellees. *
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Submitted: June 15, 2006
Filed: July 31, 2006
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Before MURPHY, MELLOY, and COLLOTON, Circuit Judges.
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MURPHY, Circuit Judge.

Great American Insurance Company (Great American) brought this action
against M. Darren O'Quinn, David Couch, and their law firm for inadequate
representation of its insured resulting in a multimillion dollar adverse jury verdict.
Ohio Casualty Insurance Co. (Ohio Casualty), which had purchased Great American's
commercial division in 1998, was added as a plaintiff three weeks after the suit was
filed.1 After the insurers learned that O'Quinn and Couch had worked at the time in
question for Dover & Dixon, P.A. rather than Dover, Dixon Horne, P.L.L.C., they
substituted it as defendant. The district court2 granted a defense motion for summary
judgment based on the governing Arkansas law. Great American and Ohio Casualty
appeal, and we affirm.

Advocat, Inc. (Advocat), owner and operator of the Rich Mountain Nursing and
Rehabilitation Center, was sued in Arkansas state court by the estate of Margaretha
Sauer which claimed that Advocat's negligent and reckless care had caused her death.
Advocat's third party administrator, Caronia Corp. (Caronia), hired Darren O'Quinn
and David Couch of the firm Dover & Dixon to defend Advocat in the wrongful death
action. On May 23, 2001, Caronia notified the defendants that Ohio Casualty was one
of Advocat's excess insurance carriers and requested that O'Quinn contact Ohio
Casualty's Vice President & Counsel, Jim Danehy, regarding the lawsuit.

O'Quinn mailed Danehy a copy of the settlement valuation that he had prepared
for Advocat 30 days before trial, which was marked "attorney client privilege".
O'Quinn's short cover letter stated:

1
We will refer to both entities as "Ohio Casualty" or "the insurers".
2
The Honorable G. Thomas Eisele, United States District Judge for the Eastern
District of Arkansas.

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 Dear Mr. Danehy:

As instructed by Janie Hanna at Caronia Corporation, I am
enclosing to you recent correspondence and my pre-trial report in
connection with the referenced matter.

If you have any questions, please do not hesitate to contact me.

O'Quinn's valuation of the case estimated a potential verdict of between $400,000 and
$600,000 in compensatory damages and $1.8 million in punitive damages. After
Danehy had received the materials, he and O'Quinn had a telephone conversation in
which counsel repeated his valuation.

On June 11, 2001 the trial in the case against Advocat began with attorneys
O'Quinn and Couch defending. Other insurers with coverage exposure engaged
separate counsel to monitor the trial and to communicate with the estate regarding a
possible settlement. Although Danehy conferred with local counsel regarding the
lawsuit, Ohio Casualty did not retain separate counsel to monitor the trial or to
negotiate with the estate. On June 22 the jury returned a verdict in favor of the estate
in the amount of $78 million, $15 million of which represented compensatory
damages with $63 million in punitive damages. The Arkansas Supreme Court
remitted the damage awards to $26 million and affirmed the judgment. This left Ohio
Casualty facing potential liability for approximately $10 million of the award.

This case was filed in June 2004, alleging that the defendants had violated
various codes of professional conduct during their representation of Advocat, failed
to communicate settlement offers, and provided inadequate representation during the
trial. The defendants filed a motion for summary judgment, arguing that the lawsuit
was barred by § 16-22-310 of the Arkansas Code. The insurers responded that the
statute was inapplicable and alternatively that they should be permitted to proceed on
an equitable subrogation theory. The district court ruled that Arkansas Code § 16-22-
310 bars malpractice suits by parties without a privity relationship with attorneys

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unless a statutory exception applies, that the insurers did not have privity with the
defendants or fit one of the statutory exceptions, and that they could not proceed based
on equitable subrogation principles in contravention of § 16-22-310.

The insurers appeal, arguing that § 16-22-310 is inapplicable to this case and
in the alternative that they should be permitted to proceed based on equitable
subrogation principles. Appellees respond that the Arkansas legislature eliminated
legal malpractice lawsuits by third parties except in limited circumstances, that this
cause of action does not fit into one of the statutory exceptions, and that application
of equitable subrogation would directly contravene the public policy expressed in §
16-22-310. We review the district court's grant of summary judgment de novo. Lund
v. Hennepin Cty, 427 F.3d 1123, 1125 (8th Cir. 2005).

Section 16-22-310 of the Arkansas Code permits only those in direct privity
with attorneys to file legal malpractice actions, but the statute has carved out two
narrow exceptions to the direct privity requirement. Ark. Code § 16-22-310.3 Parties

3
The entire text of this section of the Arkansas Code reads as follows:

16-22-310. Liability for civil damages.
(a) No person licensed to practice law in Arkansas and no partnership or
corporation of Arkansas licensed attorneys or any of its employees,
partners, members, officers, or shareholders shall be liable to persons not
in privity of contract with the person, partnership, or corporation for civil
damages resulting from acts, omissions, decisions, or other conduct in
connection with professional services performed by the person,
partnership, or corporation, except for:
(1) Acts, omissions, decisions, or conduct that constitutes fraud or
intentional misrepresentations; or
(2)(A) Other acts, omissions, decisions, or conduct if the person,
partnership, or corporation was aware that a primary intent of the client
was for the professional services to benefit or influence the particular
person bringing the action.

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lacking "privity of contract" can still pursue claims if an attorney committed "fraud
or intentional" misconduct, id. at (a)(1), or if the plaintiff is a third party beneficiary
of an attorney's services. Id. at (a)(2)(A). The third party beneficiary exception only
applies if an attorney has identified in writing, to the client and to the third party, that
the party bringing the suit was entitled to rely on his or her professional services. Id.
at (a)(2)(B); McDonald v. Pettus, 988 S.W.2d 9, 14 (Ark. 1999).

The insurance providers assert that this cause of action comes within the third
party beneficiary exception, relying on the May 23 mailing from O'Quinn to Danehy
as proof. The May 23 letter and pretrial report only informed Ohio Casualty of
counsel's settlement valuations, however. Nowhere in the mailing did O'Quinn
identify Ohio Casualty as a party who was intended to rely on the valuations. See
Jackson v. Ivory, 120 S.W.3d 587, 594-95 (Ark. 2003). In addition, Ohio Casualty
sought the advice of another attorney prior to trial and admitted during discovery that
it lacked an attorney client relationship with the defendants. The record does not show
that the defendants and Advocat intended for Ohio Casualty to rely on the defendants'
services. We conclude that the district court did not err by concluding that the
insurers are unable to bring this cause of action under the third party beneficiary
exception to § 16-22-310.

The insurers also argue that principles of equitable subrogation should allow
them to recover. Equitable subrogation is a remedy resting on principles of unjust

(B) For the purposes of subdivision (a)(2)(A) of this section, if the
person, partnership, or corporation identifies in writing to the client those
persons who are intended to rely on the services, and sends a copy of the
writing or similar statement to those persons identified in the writing or
statement, then the person, partnership, or corporation or any of its
employees, partners, members, officers, or shareholders may be held
liable only to the persons intended to so rely, in addition to those persons
in privity of contract with the person, partnership, or corporation.

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enrichment that attempts to accomplish justice between the parties. Blackford v.
Dickey, 789 S.W.2d 445, 447 (Ark. 1990). It includes "every instance in which one
person, not acting voluntarily, has paid a debt for which another was primarily liable
and which that other person should have paid." St. Paul Fire & Marine v. Murray
Guard, 37 S.W.3d 180, 183 (Ark. 2001). The insurers maintain that they should be
able to proceed based on equitable principles to ensure that the defendants will be held
accountable for having provided inadequate legal services.

Arkansas Code § 16-22-310 "enunciates the parameters for litigation by clients
against attorneys". Clark v. Ridgeway, 914 S.W.2d 745, 750 (Ark. 1996). Permitting
the insurers to proceed against the defendants would directly contravene the language
of § 16-22-310 and the public policy considerations underlying it. See Swiss
Reinsurance America Corp., Inc. v. Roetzel & Andress, 837 N.E.2d 1215, 1224 (Ohio
App. 2005). Given that the public policy of Arkansas is to shield attorneys from
malpractice suits brought by parties lacking privity with them, that the insurance
companies lacked privity with the defendants, and the appellants do not qualify for
one of the two exceptions to the privity requirement, we conclude that the district
court did not err by awarding summary judgment to the defendants.

Accordingly, we affirm the judgment of the district court.
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