Certiorari Granted, No. 31,602/No. 31,603, April 2, 2009
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: 2009-NMCA-037
Filing Date: February 17, 2009
Docket No. 27,253
SUZANNE GUEST and
THE GUEST LAW FIRM, P.C.,
Plaintiffs-Appellees/Cross-Appellants,
v.
ALLSTATE INSURANCE COMPANY,
Defendant-Appellant/Cross-Appellee.
APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY
James A. Hall, District Judge
Tucker Law Firm, P.C.
Steven L. Tucker
Santa Fe, NM
Guest Law Firm, P.C.
Suzanne Guest
Phoenix, AZ
for Appellees/Cross-Appellants
Modrall, Sperling, Roehl, Harris & Sisk, P.A.
Douglas A. Baker
Jennifer A. Noya
Albuquerque, NM
Kirkland & Ellis LLP
Richard C. Godfrey, P.C.
Andrew A. Kassof
1
Chicago, IL
for Appellant/Cross-Appellee
OPINION
VIGIL, Judge.
{1} Defendant Allstate Insurance Company (Allstate) appeals, challenging the jury award
of compensatory damages and punitive damages to Plaintiffs Suzanne Guest and the Guest
Law Firm, P.C. (Guest). Guest cross-appeals, challenging the trial court action in reducing
the punitive damages award and refusing to award attorney fees. We affirm in part, reverse
in part, and remand for a new trial on the issue of damages.
FACTUAL BACKGROUND
{2} This case arises from Guest’s representation of Allstate in an uninsured motorist
(UM) claim. In March 1997, Jamie Deveney and Travis Durham (the Durhams), were
involved in an automobile accident with an uninsured driver and made a UM claim against
Allstate under Deveney’s automobile insurance policy. Allstate referred the case to a law
firm, and the case was assigned to Ms. Guest. In 1998, Ms. Guest formed her own firm, the
Guest Law Firm, P.C., where she continued to work on the Durham matter.
{3} In 2001, following the conclusion of their UM claim, the Durhams filed suit,
(Durham I), alleging a number of claims in connection with the handling of their UM claim.
Guest was named as a defendant, along with Allstate. Guest contacted Allstate and
demanded that Allstate defend and indemnify her. According to Guest’s testimony at trial,
she informed Allstate representatives that if Allstate did not defend and indemnify her she
would no longer be in a position to represent Allstate due to a conflict of interest. Allstate
agreed to provide Guest with a defense and engaged an attorney to represent her. The
Durham I litigation was soon thereafter dismissed without prejudice.
{4} A few months later, the Durhams filed a new complaint, (Durham II) in which they
expanded on the allegations in the Durham I litigation. The Durhams asserted claims against
Guest in her role as arbitration counsel for Allstate alleging violations of the New Mexico
Insurance Code, aiding and abetting a violation of a fiduciary duty, unjust enrichment,
malicious abuse of process, malicious defense, and prima facie tort. The claims were based
on the underlying premise that deceptive claims handling practices were conducted pursuant
to Allstate’s aggressive national CCPR (claims core process redesign), DOLF (defense of
litigated files), and SFXOL (settle for X or less) policies and procedures.
{5} Allstate, however, refused to defend Guest against the Durham II claims. As a result,
Guest contacted her malpractice carrier and it retained an attorney to represent her. Guest
and her attorney met with Allstate’s counsel and demanded that Allstate continue to defend
Guest. Allstate refused. Following Allstate’s refusal to defend, Guest returned all of
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Allstate’s cases (making up eighty-five percent of Guest’s practice), with the exception of
two cases that were at a stage at which their return would be too prejudicial, and declined
to accept any more cases from Allstate. Ten days later, Guest’s attorney wrote Allstate
demanding that Allstate reconsider its position and resume Guest’s defense. Allstate did not
respond. Guest closed her law practice in November 2002, and moved to Phoenix.
{6} In early 2003, Guest’s malpractice carrier went into receivership and stopped paying
for her attorney’s services. Guest again contacted Allstate and demanded that Allstate
resume its obligation to defend and indemnify her. Although Allstate denied it had a
continuing obligation, it agreed to provide Guest a defense, and engaged an attorney to
represent her.
{7} In January 2004, Allstate began to pursue a global settlement with the Durhams, and
on March 19, 2004, Allstate told Guest to settle on terms it had negotiated, or it would
withdraw her defense. Guest refused to enter into the settlement agreement, which included
a release of all claims she might have against the Durhams and their counsel. Allstate
eventually stopped paying for Guest’s defense and Guest again obtained her own counsel.
{8} In June 2005, Guest filed suit against the Durhams’ counsel and Allstate. The trial
court granted summary judgment in favor of the Durhams’ counsel, and we affirmed in
Guest v. Berardinelli, 2008-NMCA-144, ¶ 40, 145 N.M. 186, 195 P.3d 353, cert. denied
2008-NMCERT-009, 145 N.M. 257, 196 P.3d 488. The trial court also granted summary
judgment in favor of Allstate on all of Guest’s claims except for Guest’s breach of contract,
breach of the implied covenant of good faith and fair dealing, and prima facie tort claims,
and this case proceeded to trial. The jury found in favor of Guest and awarded compensatory
and punitive damages. Following post-trial motions, the trial court reduced the amount of
punitive damages. Allstate filed this appeal and Guest cross-appealed.
DISCUSSION
{9} On appeal, Allstate challenges both the jury determination of its liability and its
award of damages. Specifically, Allstate raises five issues on appeal: (1) whether there was
an enforceable contract; (2) whether, if an enforceable contract existed, Allstate violated its
terms by withdrawing Guest’s defense; (3) whether it was error to submit the issue of prima
facie tort to the jury; (4) whether the trial court abused its discretion in admitting certain
testimony and documentation; and (5) whether the compensatory and punitive damage
awards are supported by substantial evidence. In her cross-appeal, Guest argues that: (1)
the trial court erred by reducing the jury award of punitive damages, and (2) the trial court
erred by not permitting Guest to recover attorney fees. We address each of these issues
below.
I. THE EXISTENCE OF A LEGAL, ENFORCEABLE CONTRACT
A. The trial court did not err by submitting the existence of a contract to
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the jury and the jury determination is supported by substantial
evidence.
{10} Allstate challenges the trial court denial of its motion for a directed verdict and
submission of whether there was a contract to the jury. Allstate argues that there was no
evidence that could, as a matter of law, establish that Guest provided consideration for the
alleged contract to defend and indemnify her and, as a result, the trial court erred by
submitting the contract claim to the jury. We review the trial court ruling on Allstate’s
directed verdict motion de novo. See Hedicke v. Gunville, 2003-NMCA-032, ¶ 9, 133 N.M.
335, 62 P.3d 1217. Allstate further argues that, to the extent Guest asserts her consideration
was to make herself available to work on Allstate’s cases, the agreement lacked mutuality,
because Guest had no obligation to comply with this promise, and Allstate had the right to
terminate Guest’s representation at any time. This argument raises an issue of law which is
also subject to de novo review. See Piano v. Premier Distrib. Co., 2005-NMCA-018, ¶ 8,
137 N.M. 57, 107 P.3d 11.
{11} Our Supreme Court held in C.E. Alexander & Sons, Inc. v. DEC Int’l, Inc.:
It is the province of the trial court to determine all questions of law, including the
legal sufficiency of any asserted claim or defense. If the evidence fails to present or
support an issue essential to the legal sufficiency of an asserted claim, the right to
jury trial disappears. It is fundamental that the evidence adduced must support all
issues of fact essential to the maintenance of a legally recognized and enforceable
claim. Otherwise, there can be no basis in fact for the claim, and it must be
dismissed as a matter of law.
112 N.M. 89, 93, 811 P.2d 899, 903 (1991) (internal quotation marks and citation omitted).
However, “‘[w]hen the existence of a contract is at issue and the evidence is conflicting or
permits more than one inference, it is for the finder of fact to determine whether the contract
did in fact exist.’” Eckhardt v. Charter Hosp. of Albuquerque, Inc., 1998-NMCA-017, ¶ 39,
124 N.M. 549, 953 P.2d 722 (quoting Garcia v. Middle Rio Grande Conservancy Dist., 99
N.M. 802, 807, 664 P.2d 1000, 1005 (Ct. App. 1983), overruled on other grounds by
Montoya v. AKAL Sec., Inc., 114 N.M. 354, 357, 838 P.2d 971, 974 (1992)); see also Segura
v. Molycorp, Inc., 97 N.M. 13, 18, 636 P.2d 284, 289 (1981).
{12} “Ordinarily, to be legally enforceable, a contract must be factually supported by an
offer, an acceptance, consideration, and mutual assent.” Hartbarger v. Frank Paxton Co.,
115 N.M. 665, 669, 857 P.2d 776, 780 (1993). Consideration is essential to the enforcement
of a contract, see Romero v. Earl, 111 N.M. 789, 791, 810 P.2d 808, 810 (1991), and
“consists of a promise to do something that a party is under no legal obligation to do or to
forbear from doing something he [or she] has a legal right to do.” Heye v. Am. Golf Corp.,
2003-NMCA-138, ¶ 12, 134 N.M. 558, 80 P.3d 495. In order to constitute consideration,
a promise must be binding. “When a promise puts no constraints on what a party may do
in the future—in other words, when a promise, in reality, promises nothing—it is illusory,
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and it is not consideration.” Id. Furthermore, “[a] valid contract must possess mutuality of
obligation,” meaning that “both sides must provide consideration.” Bd. of Educ. v. James
Hamilton Constr. Co., 119 N.M. 415, 420, 891 P.2d 556, 561 (Ct. App. 1994).
{13} Where a contract leaves it entirely optional for one of the parties to perform, the
contract is not founded on mutual promises and is, generally, not binding or enforceable.
Acme Cigarette Servs., Inc. v. Gallegos, 91 N.M. 577, 581, 577 P.2d 885, 889 (Ct. App.
1978). “An optional contract may be enforced, however, when mutuality comes into
existence by reason of an executed consideration.” Id. “Accordingly, where a contract lacks
mutuality at its inception, performance may act as a substitute for consideration.” Talbott
v. Roswell Hosp. Corp., 2005-NMCA-109, ¶ 18, 138 N.M. 189, 118 P.3d 194; see also Acme
Cigarette Servs., Inc., 91 N.M. at 581, 577 P.2d at 889 (“In other words, where one party not
bound by an option contract accepts the benefits under the contract, this party cannot at the
same time avoid the obligation under the contract.”). For performance to constitute
consideration in support of a putative contract, Guest’s actions must have been something
for which Allstate bargained. See Talbott, 2005-NMCA-109, ¶ 19.
{14} Guest presented evidence to the jury that would have permitted more than one
inference regarding the existence of consideration. Specifically, Guest testified that she
informed Allstate that if Allstate did not defend and indemnify her she would no longer “be
in a position to handle their cases” due to a conflict of interest. When she attempted to return
a case at that time, she was persuaded by Allstate to keep the case and continued her work
on it, and she was assured by Allstate that it would take care of the matter. Guest further
testified that she was later contacted by Allstate and was informed that Allstate would defend
her and that she could choose her own counsel. Guest said that she continued to work on
cases she had already accepted from Allstate, and continued to accept new cases until March
2002. Guest asserted that her agreement with Allstate was that Allstate would defend her
until the Durham claims were resolved, and that she would have control over her own
defense. Allstate, however, presented testimony that Guest had never promised Allstate
anything in return for a defense and indemnification, that Allstate offered to pay for Guest’s
defense as a gratuitous gesture, and that no contract was ever formed. We conclude that this
evidence permits more than one inference about whether Allstate bargained with Guest to
provide a defense in return for Guest’s continued handling of its cases. Accordingly, we
conclude that, in light of this conflicting evidence as to whether a contract existed, the trial
court did not err in submitting the issue to the jury.
{15} Allstate further argues that Guest’s continued work on Allstate’s cases and her
acceptance of additional cases cannot constitute consideration because Guest had already
closed her law practice at the time Allstate agreed to represent her. However, Allstate’s
argument presupposes that the contract was entered into in early 2003, after Guest’s
malpractice carrier went into receivership. Evidence contrary to this conclusion was
presented at trial. Specifically, Guest testified that the contract between herself and Allstate
was entered into when Durham I was filed, and the agreement was that Allstate would
represent her until the Durham claims were resolved. Once again, there is conflicting
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evidence about when the contract was entered into and its terms. We are therefore
unpersuaded by Allstate’s arguments.
{16} We conclude that the evidence detailed above was sufficient to support the jury
determination that a contract existed. This Court will not disturb a jury verdict unless it is
unsupported by substantial evidence. See Barnes v. Sadler Assocs., Inc., 95 N.M. 334, 335,
622 P.2d 239, 240 (1981). “Substantial evidence means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion, and has been defined as
evidence of substance which establishes facts from which reasonable inferences may be
drawn.” Tapia v. Panhandle Steel Erectors Co., 78 N.M. 86, 89, 428 P.2d 625, 628 (1967)
(citation omitted). In reviewing whether substantial evidence exists, this Court resolves all
disputed facts in favor of the successful party and indulges all reasonable inferences in
support of the verdict. Id.
B. Rule 16-108 NMRA Does Not Void the Contract
{17} Allstate contends that, even if a contract was formed, the contract to defend Guest
is not enforceable because it violates Rule 16-108 of the New Mexico Rules of Professional
Conduct. Allstate raised the issue with the trial court in its motion for summary judgment
and motion for directed verdict at the close of Guest’s case-in-chief. At both junctures, the
trial court ruled that there were issues of fact regarding the applicability of the rule to the
type of transaction at issue in this case, and if the rule was applicable, there were issues of
fact regarding Guest’s compliance with its provisions.
{18} The trial court refused to resolve the issue as a matter of law. Allstate therefore
requested that the trial court instruct the jury, based on Van Orman v. Nelson, 78 N.M. 11,
427 P.2d 896 (1967), that a violation of Rule 16-108 would render the contract between an
attorney and a client voidable by the client. The trial court refused Allstate’s tendered
instruction, stating a concern with the applicability of Van Orman since it was decided prior
to enactment of the Rules of Professional Conduct. Nevertheless, it did submit an instruction
to the jury instructing it on what Rule 16-108 provides.
{19} Allstate contends that it was error not to find the contract void as a matter of law, and
that the refusal to submit its Van Orman instruction was error. Allstate contends that,
although the trial court submitted an instruction stating that attorneys and clients may not
enter into business transactions, the trial court erred when it failed to further instruct the jury,
as requested, that when they do, a client may void the contract.
{20} We refer to Rule 16-108(A) as the business transaction rule. It provides that an
attorney may not enter into a business transaction with his or her client unless:
(1) the transaction and terms on which the lawyer acquires the
interest are fair and reasonable to the client and are fully disclosed and
transmitted in writing to the client in a manner which can be reasonably
6
understood by the client;
(2) the client is given a reasonable opportunity to seek the advice
of independent counsel in the transaction; and
(3) the client consents in writing thereto.
The commentary to Rule 16-108(A) states that it does not apply “to standard commercial
transactions between the lawyer and the client for products or services that the client
generally markets to others.” Id. At trial, testimony provided by Guest’s legal ethics expert
addressed whether or not the contract between Guest and Allstate was subject to the
“standard commercial transaction” exception. However, regardless of whether the
contractual relationship qualifies as a standard commercial transaction, we hold that a
contract between a client and an attorney is not, as a matter of law, rendered unenforceable
by Rule 16-108.
{21} The Rules of Professional Conduct have limited application outside the disciplinary
process. Our Supreme Court has previously held that the former Code of Professional
Responsibility was “established to discipline attorneys [and] not intended to provide a
foundation for civil liability.” Garcia v. Rodey, Dickason, Sloan, Akin & Robb, P.A., 106
N.M. 757, 762, 750 P.2d 118, 123 (1988). This principle is also reflected in the preamble
to the Rules of Professional Conduct:
Violation of a rule should not give rise to a cause of action nor should
it create any presumption that a legal duty has been breached. The rules are
designed to provide guidance to lawyers and to provide a structure for
regulating conduct through disciplinary agencies. They are not designed to
be a basis for civil liability. Furthermore, the purpose of the rules can be
subverted when they are invoked by opposing parties as procedural weapons.
The fact that a rule is a just basis for a lawyer’s self-assessment, or for
sanctioning a lawyer under the administration of a disciplinary authority,
does not imply that an antagonist in a collateral proceeding or transaction has
standing to seek enforcement of the rule. Accordingly, nothing in the rules
should be deemed to augment any substantive legal duty of lawyers or the
extra-disciplinary consequences of violating such a duty.
{22} Further support for our holding can be found in decisions of other states concluding
that a violation of the business transaction rule does not render a contract unenforceable. See
Ankerman v. Mancuso, 830 A.2d 388, 391-93 (Conn. App. Ct. 2003) (reversing the trial
court determination that the business transaction rule served as a special defense and barred
the enforcement of a note held by an attorney and secured by a mortgage on property
belonging to the attorney’s client); Liggett v. Young, 877 N.E.2d 178, 180-83 (Ind. 2007)
(relying on the preamble to the Indiana Rules of Professional Conduct in determining that
the business transaction rule could not be relied on to resolve the issue of civil liability under
7
a construction contract between an attorney and client). Allstate’s reliance on disciplinary
proceedings against New Mexico licensed attorneys, see, e.g., In re Darnell, 1997-NMSC-
025, 123 N.M. 323, 940 P.2d 171, and In re Schmidt, 118 N.M. 213, 880 P.2d 310 (1994),
does not support Allstate’s argument that a violation of Rule 16-108 makes a contract
between an attorney and a client unenforceable as a matter of law.
{23} Our holding does not mean, however, that clients are without a remedy when they
enter into a contract with their attorney. As indicated by the commentary to Rule 16-108,
the rule against attorneys entering into business transactions with clients was promulgated
to ensure that transactions between clients and attorneys remain fair and reasonable and to
ensure that attorneys do not exercise an unfair advantage over their clients. To that end, “[i]f
there has been ‘an absence of meaningful choice on the part of one of the parties together
with contract terms which are unreasonably favorable to the other party,’ a contract may be
held to be unconscionable.” Guthmann v. La Vida Llena, 103 N.M. 506, 510, 709 P.2d 675,
679 (1985) (quoting Bowlin’s, Inc. v. Ramsey Oil Co., 99 N.M. 660, 668, 662 P.2d 661, 669
(Ct. App. 1983)). “Lack of meaningful choice relates to a procedural analysis of
unconscionability and is determined by examining the circumstances surrounding the
contract formation, including the particular party’s ability to understand the terms of the
contract and the relative bargaining power of the parties.” Id. We believe this is the
principle for which Van Orman stands.
{24} In Van Orman, our Supreme Court upheld the trial court judgment rescinding all
conveyances between an attorney and his client. 78 N.M. at 24, 427 P.2d at 909. Of import
to the decision was the client’s inexperience and lack of information regarding legal and
business affairs, along with her deteriorating mental health at the time she and the attorney
entered into the disputed transactions. Id. at 13-15, 22-23, 427 P.2d at 898-900, 907-08. To
this end, our Supreme Court stated:
Contracts between client and attorney will be closely scrutinized by the
courts and when a client challenges the fairness of such contract the attorney has the
burden of showing not only that he used no undue influence but that in every
particular he acted honestly and in good faith.
Id. at 23, 427 P.2d at 908. Thus, we conclude that Van Orman does not stand for the
proposition that all contracts entered into between a client and an attorney are unenforceable,
but that a contract between a client and an attorney must be fair, and the client must have had
the opportunity to make a meaningful choice, or it may be found to be unconscionable. We
therefore conclude that refusal of the trial court to submit Allstate’s requested
instruction—“[a] contract that violates an attorney’s professional obligations to her client
may be voidable by the client”—was not error. See State v. Nieto, 2000-NMSC-031, ¶ 17,
129 N.M. 688, 12 P.3d 442 (“A trial court’s refusal to submit a jury instruction is not error
if the submission of the instruction would mislead the jury by promoting a misstatement of
the law.”).
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{25} Finally, while we conclude that the trial court should not have submitted the issue
to the jury, we hold that there was no prejudice to Allstate where the jury found either that
Rule 16-108 was inapplicable, or that Guest complied with its requirements. See In re Estate
of Heeter, 113 N.M. 691, 695, 831 P.2d 990, 994 (Ct. App. 1992) (“On appeal, error will not
be corrected if it will not change the result.”).
II. ALLSTATE DID NOT FULFILL ITS OBLIGATION UNDER THE
CONTRACT
{26} Allstate contends that, even if there was a valid contract, it did not breach the
contract, but satisfied all of its material terms. We understand Allstate to argue that, as a
matter of law, it “satisfied any possible contractual obligation to defend and indemnify
Guest” by “negotiating a settlement where Guest would be released without paying a
penny.” However, Allstate has not pointed to any authorities in support of this argument.
Instead, Allstate suggests that this Court should extend the rationale of cases involving the
good-faith obligations of insurers to their insureds in negotiating settlements, and hold that,
once Allstate negotiated a potential settlement to which Guest refused to agree, Allstate
satisfied its obligation under the contract. Even if we were to apply principles from insurer-
insured relationships to the present case, Allstate has not provided any authority to suggest
a conclusion that it discharged its obligation by negotiating a settlement which Guest would
not agree to. To the extent Allstate relies on Dairyland Insurance Co. v. Herman, 1998-
NMSC-005, 124 N.M. 624, 954 P.2d 56, Teigen v. Jelco of Wisconsin, Inc., 367 N.W.2d 806
(Wis. 1985), and Aetna Casualty & Surety Co. v. Coronet Insurance Co., 358 N.E.2d 914
(Ill. App. Ct. 1976), these cases do not support Allstate’s argument.
{27} In Dairyland, our Supreme Court held that an insurer has a duty to avoid exposing
an insured to greater liability and settle when appropriate in order to protect the interests of
the insured. 1998-NMSC-005, ¶¶ 13-15. Dairyland does not, however, hold that an insurer
discharges all of its obligations to an insured by negotiating a settlement which the insured
does not agree to. See Fernandez v. Farmers Ins. Co. of Ariz., 115 N.M. 622, 627, 857 P.2d
22, 27 (1993) (“[C]ases are not authority for propositions not considered.” (internal
quotation marks and citation omitted)). In Teigen, the Wisconsin Supreme Court held that
a primary insurer satisfied its obligation to its insured when it entered into a settlement
agreement with the plaintiffs and had an agreement in place to pay an amount, through a
structured settlement, in excess of policy limits. The court based its holding that the insurer
satisfied its duty to defend on language from the insurance policy, which stated that the
insurer was not obligated “to defend any suit after the applicable limit of the company’s
liability has been exhausted by payment of judgments or settlements,” and not on general
duties owed by an insurer to its insured. Teigen, 367 N.W.2d at 810 (internal quotation
marks omitted). Similar policy provisions controlling the duty of the insurer are not present
in this case. Finally, nowhere in Aetna Casualty & Surety Co., does the Illinois appellate
court discuss whether an insurer’s obligation to defend an insured is discharged once it
negotiates a settlement to which the insured refuses to consent. See generally 358 N.E.2d
914. Because Allstate cites no authority in support of its proposition, we assume no such
9
authority exists. See In re Adoption of Doe, 100 N.M. 764, 765, 676 P.2d 1329, 1330 (1984)
(providing that where a party cites no authority to support an argument, we may assume no
such authority exists); see also Farmers, Inc. v. Dal Mach. & Fabricating, Inc., 111 N.M.
6, 8, 800 P.2d 1063, 1065 (1990) (providing that the burden is on the appellant to clearly
demonstrate that the trial court erred).
{28} Moreover, Allstate’s reliance on National Old Line Insurance Co. v. Brown, 107
N.M. 482, 760 P.2d 775 (1988), and Gibbs v. Whelan, 56 N.M. 38, 239 P.2d 727 (1952), to
argue that Guest cannot complain of nonperformance where she prevented performance, is
misplaced. See Nat’l Old Line Ins., 107 N.M. at 487, 760 P.2d at 780 (“A party to a contract,
who prevents its performance by the adverse party, cannot rely on such condition to defeat
his liability.” (emphasis added)); Gibbs, 54 N.M. at 41-42, 239 P.2d at 730 (“A party to a
contract cannot take advantage of his own act or omission to escape liability thereon.”
(emphasis added)). Although “[e]ach party to an enforceable agreement has a duty not to
prevent performance by the other party[,]” see Estate of Griego ex rel. Griego v. Reliance
Standard Life Ins. Co., 2000-NMCA-022, ¶ 27, 128 N.M. 676, 997 P.2d 150, Guest did not
prevent Allstate from fulfilling its duty to defend. Allstate could have satisfied its contract
with Guest by representing her.
{29} Finally, there was substantial evidence to support the jury determination that Allstate
breached its contract with Guest and that it violated the implied covenant of good faith and
fair dealing. See Landavazo v. Sanchez, 111 N.M. 137, 138, 802 P.2d 1283, 1284 (1990)
(“Substantial evidence is such relevant evidence that a reasonable mind would find adequate
to support a conclusion.”); Weidler v. Big J Enters. Inc., 1998-NMCA-021, ¶ 30, 124 N.M.
591, 953 P.2d 1089 (stating that in reviewing a sufficiency of the evidence claim, the
reviewing court views the evidence in the light most favorable to the prevailing party and
disregards evidence and inferences to the contrary). The jury was instructed that a breach
occurs when a person fails to perform a contractual obligation when that performance is
called for, or when a party fails to act in good faith, and that good faith requires that a party
act honestly and in accordance with standards of fair dealing under the surrounding
circumstances. See Atler v. Murphy Enters., Inc., 2005-NMCA-006, ¶ 13, 136 N.M. 701,
104 P.3d 1092 (“Jury instructions become the law of the case against which the sufficiency
of the evidence is to be measured.” (internal quotation marks and citation omitted)).
{30} Guest testified that when Durham I was filed she contacted Allstate and asked to be
defended and indemnified, and Allstate agreed; that the terms of the agreement were that
Allstate would defend her until a final conclusion was reached and that Guest would control
the litigation; that when Durham II was filed, based on the same allegations, Allstate refused
to defend and indemnify Guest; that Guest made multiple demands that Allstate defend her;
and that once Allstate agreed to Guest’s continued defense and indemnification after Guest’s
malpractice carrier became insolvent, Allstate threatened to take away Guest’s defense if she
did not agree to the settlement Allstate had negotiated to fully release the Durhams and their
counsel from any liability stemming from the prosecution of Durham I and II. Based on this
testimony, we hold that a reasonable jury could have concluded that Allstate breached a
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material term of the contract by refusing to defend and indemnify Guest or failed to act in
good faith by threatening to discontinue Guest’s defense if she refused to consent to the
settlement agreement negotiated by Allstate. See Famiglietta v. Ivie-Miller Enters., Inc.,
1998-NMCA-155, ¶ 17, 126 N.M. 69, 966 P.2d 777 (describing a material breach as the
“failure to do something that is so fundamental to the contract that the failure to perform that
obligation defeats an essential purpose of the contract” (internal quotation marks and citation
omitted)); Sanders v. FedEx Ground Package Sys., Inc., 2008-NMSC-040, ¶ 8, 144 N.M.
449, 188 P.3d 1200 (observing that the implied covenant of good faith and fair dealing is
breached when “a party seeks to prevent the contract’s performance or to withhold its
benefits from the other party” (internal quotation marks and citation omitted)).
{31} We therefore conclude that Allstate has failed to demonstrate that (1) it discharged
its duty to Guest by negotiating a settlement unacceptable to Guest; (2) Guest prevented its
performance; and (3) there was insufficient evidence to support the jury determination that
Allstate failed to meet its obligation to Guest.
III. SUBMITTING THE CLAIM OF PRIMA FACIE TORT TO THE JURY
WAS NOT ERROR
{32} Allstate contends that the trial court erred by submitting the claim of prima facie tort
to the jury and that its submission was duplicative, confused the jury, and resulted in an
inconsistent verdict from which there is “no way to discern what proportion, if any, of the
verdict was a result of [jury] error.” Allstate contends that the error arises because Guest’s
prima facie tort claim and her breach of contract claim were both predicated on the same
facts. After reviewing Allstate’s argument, we conclude that the trial court did not err by
submitting the claim of prima facie tort to the jury.
{33} “Prima facie tort is intended to provide a remedy for persons harmed by acts that are
intentional and malicious, but otherwise lawful, which fall outside of the rigid traditional
intentional tort categories.” Bogle v. Summit Inv. Co., 2005-NMCA-024, ¶ 22, 137 N.M. 80,
107 P.3d 520 (internal quotation marks and citation omitted). New Mexico recognized a
cause of action for prima facie tort in Schmitz v. Smentowski, 109 N.M. 386, 394-97, 785
P.2d 726, 734-37 (1990). In doing so, however, our Supreme Court recognized that “prima
facie tort should not be used to evade stringent requirements of other established doctrines
of law.” Id. at 398, 785 P.2d at 738. Thus, while a plaintiff may plead prima facie tort in
the alternative, New Mexico appellate courts have held that where a plaintiff does not assert
any separate factual basis to support its prima facie tort claim, and the plaintiff’s proof is
susceptible to submission under another tort, the action should be submitted to the jury on
the other cause of action and not as a prima facie tort claim. See id. at 396, 785 P.2d at 736;
Healthsource, Inc. v. X-Ray Assocs. of N.M., P.C., 2005-NMCA-097, ¶¶ 35-37, 138 N.M.
70, 116 P.3d 861.
{34} In Aetna Finance Co. v. Gaither, 118 N.M. 246, 249, 880 P.2d 857, 860 (1994), our
Supreme Court affirmed the trial court refusal to submit a claim of prima facie tort to the jury.
11
The Court relied on Bandag of Springfield, Inc. v. Bandag, Inc., 662 S.W.2d 546, 552-53 (Mo.
Ct. App. 1983), which explained that if, at the close of the evidence, the plaintiff failed to
provide proof of an intentional lawful act—which distinguishes prima facie tort from traditional
intentional torts—prima facie tort could not be submitted to the jury. Our Supreme Court
recognized that this principle “has long been established in New Mexico by our cases stating
that a court may properly refuse to submit a theory to the jury if it is not supported by the
evidence.” Aetna Fin. Co., 118 N.M. at 249, 880 P.2d at 860 (citing Fleet Mortgage Corp. v.
Schuster, 112 N.M. 48, 50, 811 P.2d 81, 83 (1991) (affirming summary judgment dismissal of
prima facie tort claim where the plaintiff failed to present evidence of element of intent), and
State v. Akin, 75 N.M. 308, 312, 404 P.2d 134, 137 (1965) (holding that the court properly
refused to instruct on an issue for which no evidence was offered)). Similarly, in Beavers v.
Johnson Controls World Services, Inc., 120 N.M. 343, 351-52, 901 P.2d 761, 769-70 (Ct. App.
1995), we held that, where the factual predicate for the two claims are different, it is not error
for both prima facie tort and intentional infliction of emotional distress to be submitted to the
jury.
{35} Allstate argues that the factual predicate for Guest’s breach of contract and prima facie
tort claim are the same, and therefore the trial court erred by submitting both claims to the jury.
We disagree. As this Court noted in Healthsource, Inc.: “[T]he value and validity of prima
facie tort as a separate cause of action depends upon its ability to offer relief for the intentional
infliction of harm where the actor’s otherwise lawful conduct cannot be brought within other
more traditional categories of liability.” 2005-NMCA-097, ¶ 36 (internal quotation marks and
citation omitted). Here, there was evidence presented that would support a jury determination
that either Allstate entered into a contract with Guest and failed to fulfill its obligations
(resulting in a breach of contract), or Allstate provided a gratuitous defense, not arising out of
any contractual obligation, but engaged in a series of acts intended to harm Guest. If the jury
concluded based on the evidence before it that no contract existed, then Guest would have no
breach of contract claim. As a result, the prima facie tort claim offered relief that was not
available under the breach of contract claim, by providing a means of addressing conduct by
Allstate that would otherwise be lawful in the absence of a contract, but would support liability
in tort. Furthermore, there was sufficient evidence to support submitting Guest’s prima facie
claim to the jury. See Thompson Drilling, Inc. v. Romig, 105 N.M. 701, 705, 736 P.2d 979, 983
(1987) (providing that if a legal theory is supported by the evidence, a party is entitled to have
the jury instructed on that theory). Accordingly, we find no error.
{36} To the extent that Allstate argues that inherent inconsistencies in the jury verdict require
reversal or, at the very least, a new trial, we conclude that, after having the verdict read aloud
by the judge and the jury polled at Allstate’s request, Allstate waived its right to challenge the
inconsistency in the verdict by failing to bring the matter to the trial court’s attention before the
jury was discharged. See Ramos v. Rodriguez, 118 N.M. 534, 536, 882 P.2d 1047, 1049 (Ct.
App. 1994) (holding that the defendant waived his opportunity to challenge a facially
inconsistent verdict where he failed to raise the issue before the jury’s discharge and rejecting
the defendant’s argument that he did not have an opportunity to object when the verdict had
been read aloud and the jury had been polled); see also G & G Servs., Inc. v. Agora Syndicate,
12
Inc., 2000-NMCA-003, ¶¶ 41, 42, 128 N.M. 434, 993 P.2d 751 (“A litigant who fails to object
to an alleged inconsistency in a jury’s verdict before the jury is dismissed may be held to have
waived any further challenge to the alleged inconsistency.”); Thompson Drilling Inc., 105 N.M.
at 703, 736 P.2d at 981 (“[T]he right to object to an improper verdict is waived when not made
at the time of the return of the verdict and cannot be reclaimed and revived by resorting to a
motion for a new trial or on appeal.”).
{37} Finally, because we hold substantial evidence supports Guest’s breach of contract claim,
we do not address whether substantial evidence supports a jury determination that a prima facie
tort was also committed.
IV. EVIDENTIARY ERRORS
A. Allstate Acquiesced in Admission of an E-mail as a Business Record
{38} Allstate argues that the trial court committed prejudicial error by admitting an e-mail
written by the attorney retained by Allstate to represent Guest, opining that Allstate’s attorney
“would fit right in at Arthur Anderson (‘start shredding’) or Enron,” as a business record.
Guest argues that Allstate cannot challenge the admission of the e-mail as a business record on
appeal because Allstate failed to object to its admission at trial on that basis. The trial transcript
discloses that when Guest raised the issue of admission of the e-mail as a business record at
trial, Allstate did not object that it was inadmissible as a business record. The only objection
Allstate made was that it would be more prejudicial than probative pursuant to Rule 11-403
NMRA.
{39} In order “[t]o preserve error, [a] party must raise the same objection on appeal that was
raised at trial.” Hinger v. Parker & Parsley Petroleum Co., 120 N.M. 430, 441, 902 P.2d 1033,
1044 (Ct. App. 1995) (second alteration in original) (internal quotation marks and citation
omitted); see also Woolwine v. Furr’s, Inc., 106 N.M. 492, 496, 745 P.2d 717, 721 (Ct. App.
1987) (“To preserve an issue for review on appeal, it must appear that [the] appellant fairly
invoked a ruling of the trial court on the same grounds argued in the appellate court.”). Because
Allstate made no objection to the admission of the exhibit as a business record, we hold that
Allstate acquiesced in its admission and waived its right to challenge its admission as a business
record on appeal. By acquiescing in the admission of the exhibit as a business record and not
informing the trial court of the reasons the exhibit did not qualify as a business record, Allstate
may not now complain of the alleged error. See Cordova v. Taos Ski Valley, Inc., 121 N.M.
258, 263, 910 P.2d 334, 339 (Ct. App. 1995) (“A party who has contributed, at least in part, to
perceived shortcomings in a trial court’s ruling should hardly be heard to complain about those
shortcomings on appeal.”); see also Hodgkins v. Christopher, 58 N.M. 637, 641, 274 P.2d 153,
155 (1954) (“It is too well established for dispute that a party litigant may not invite error and
then take advantage of it.”). To the extent that Allstate refers to its general objection to
correspondence from the attorney to Guest as hearsay, we note that Allstate withdrew its
objection and cannot now rely on that withdrawn objection to argue that the issue was
preserved. Cf. State v. Frazier, 2007-NMSC-032, ¶ 38, 142 N.M. 120, 164 P.3d 1 (“A party
13
cannot rely on a withdrawn objection to preserve error.” (internal quotation marks, alteration,
and citation omitted)).
{40} We therefore decline to address Allstate’s argument that the trial court erred in
admitting the e-mail as a business record. We further decline to review the trial court
determination that the e-mail was more probative than prejudicial. Although Allstate’s
objection at trial was premised on Rule 11-403, Allstate has provided no argument or authority
on appeal, indicating how the trial court abused its discretion in balancing the probative value
of the e-mail against its prejudicial effect. See Allen v. Amoco Prod. Co., 114 N.M. 18, 22, 833
P.2d 1199, 1203 (Ct. App. 1992) (stating that it is the appellant’s burden to demonstrate error);
see also Wilburn v. Stewart, 110 N.M. 268, 272, 794 P.2d 1197, 1201 (1990) (“Issues raised
in appellate briefs that are unsupported by cited authority will not be reviewed . . . on appeal.”).
B. Admission of the McKinsey Documents Was Not Error
{41} Allstate also contends that the trial court erred by admitting documents relating to
Allstate’s claims practices, referred to as the “McKinsey documents.” Allstate objected to the
admission of the McKinsey documents at trial on the basis of relevance, foundation, and Rule
11-403. On appeal, this Court reviews a trial court decision to admit or exclude evidence for an
abuse of discretion. See Coates v. Wal-Mart Stores, Inc., 1999-NMSC-013, ¶ 36, 127 N.M. 47,
976 P.2d 999. “An abuse of discretion occurs when the ruling is clearly against the logic and
effect of the facts and circumstances of the case.” Id. (internal quotation marks and citation
omitted). “A trial court abuses its discretion by its ruling only if we can characterize it as clearly
untenable or not justified by reason.” Id. (internal quotation marks and citation omitted).
{42} Relevant evidence is evidence “having any tendency to make the existence of any fact
that is of consequence to the determination of the action more probable or less probable than it
would be without the evidence.” Rule 11-401 NMRA. Relevant evidence is generally
admissible pursuant to Rule 11-402 NMRA, and any doubt as to whether the evidence is relevant
should be resolved in favor of admissibility. See Coates, 1999-NMSC-013, ¶ 37.
{43} Allstate contends that the McKinsey documents were not relevant evidence because they
contained recommendations regarding how Allstate handled claims by its insureds, Guest was
not an insured, and not all of the recommendations were adopted by Allstate. Allstate’s
argument is unpersuasive. It is not Allstate’s adoption of these recommendations or their
applicability to Guest which makes them relevant. Instead, it is the impact that these documents
had on Allstate’s dealings with Guest—Allstate’s desire not to make the documents public and
its alleged pressure on Guest to settle in order to avoid the documents being made public—that
makes the documents relevant in this case. See McNeill v. Burlington Res. Oil & Gas Co., 2008-
NMSC-022, ¶ 14, 143 N.M. 740, 182 P.3d 121 (“[W]hatever naturally and logically tends to
establish a fact in issue is relevant.” (alteration in original) (internal quotation marks and citation
omitted)). Accordingly, we cannot conclude that the trial court abused its discretion in
determining that the McKinsey documents constitute relevant evidence. See McDowell v.
Napolitano, 119 N.M. 696, 702, 895 P.2d 218, 224 (1995) (stating that an appellate court will
14
only find that the trial court abused its discretion by admitting evidence “when the [trial] court’s
decision is without logic or reason, or . . . is clearly unable to be defended” (internal quotation
marks and citation omitted)).
{44} Allstate also argues that the trial court abused its discretion by admitting the McKinsey
documents as admissions by a party-opponent, because a proper foundation for their admission
was not established. Referring to Rule 11-602 NMRA, Allstate contends that Guest was unable
to lay the proper foundation because she had not been involved in the drafting or compiling of
the McKinsey documents and therefore had no personal knowledge regarding the documents.
Rule 11-602 provides that “[a] witness may not testify to a matter unless evidence is introduced
sufficient to support a finding that the witness has personal knowledge of the matter.” The
personal knowledge requirement of Rule 11-602 is intended to ensure that the evidence
presented is reliable. See Fed. R. Evid. 602 advisory committee’s notes (stating that the personal
knowledge requirement is intended to ensure the most reliable source of information); see also
Albuquerque Redi-Mix, Inc. v. Scottsdale Ins. Co., 2007-NMSC-051, ¶ 9, 142 N.M. 527, 168
P.3d 99 (stating that, “[w]hen our state court rules closely track the language of their federal
counterparts, . . . federal construction of the federal rules is persuasive authority for the
construction of New Mexico rules”).
{45} Admissions of a party opponent, however, are admissible not because the circumstances
surrounding the statements make them reliable, but because they are statements made by a party
opponent. See 4 Jack B. Weinstein et al., Weinstein’s Evidence ¶ 801(d)(2)[01], at 801-232 to
801-233 (1996) (stating that “[u]nlike the majority of hearsay exceptions, which are grounded
upon a probability of trustworthiness, the admissibility of an admission made by the party
himself does not rest upon a notion that the circumstances in which it was made furnish the trier
of fact with adequate means of evaluating the statement[,]” and noting that the “admissions are
received because a party cannot complain about the lack of an opportunity to cross-examine
himself”); see also Grace United Methodist Church v. City of Cheyenne, 451 F.3d 643, 667
(10th Cir. 2006) (providing that an admission by a party opponent needs no indicia of
trustworthiness to be admitted); Harris v. United States, 834 A.2d 106, 116 (D.C. 2003) (“Party
admissions differ from most out-of-court statements in that their admissibility does not require
the demonstration of guarantee[s] of trustworthiness but is based rather upon the identity of the
speaker.” (alteration in original) (internal quotation marks and citation omitted)).
{46} Our Supreme Court has recognized that “[a]n opposing party may introduce out-of-court
statements made by its opponent under the theory that the declarant party is in court and has the
opportunity to deny or explain such statements[.]” See State v. McClaugherty, 2003-NMSC-
006, ¶ 27, 133 N.M. 459, 64 P.3d 486. Based in part on this principle, a majority of jurisdictions
hold that admissions by a party-opponent need not be based on personal knowledge to be
admissible. See 2 Kenneth S. Broun, et al., McCormick on Evidence § 255, at 183 (6th ed. 2006)
(“[T]he traditional view that firsthand knowledge is not required for admissions is accepted by
the vast majority of courts and adopted by the Federal Rules.” (footnote omitted)); see also
Blackburn v. United Parcel Serv., Inc., 179 F.3d 81, 96 (3d Cir. 1999) (“Admissions by a party-
opponent need not be based on personal knowledge to be admitted under Rule 801(d)(2).”);
15
S.E.C. v. Merrill Scott & Assocs., Ltd., 505 F. Supp. 2d 1193, 1200 (D. Utah 2007) (“Admissions
by party-opponents are admissible, even if they are not based on personal knowledge.”). Not
only does the party have an opportunity to explain or deny such statements, we note that “the
possibility is substantial that the declarant may have significant information that the opponent
cannot prove.” 2 Broun, supra, § 255, at 183.
{47} While we hold that personal knowledge is not required for an admission by a party-
opponent to be received into evidence, a foundation must still be laid. See 4 Weinstein, supra,
at ¶ 801(d)(2)[01], at 801-251 (“A proper foundation for receipt of the admission must be
established.”). In determining the necessary foundation for an admission by a party opponent,
we are guided by Rule 11-901(A) NMRA: “The requirement of authentication or identification
as a condition precedent to admissibility is satisfied by evidence sufficient to support a finding
that the matter in question is what its proponent claims.” Where the proponent claims that the
matter in question is an admission by a party-opponent, “[a]ll that is required is that the
statements have been made by the party or his representative and that it be introduced by an
adverse party as in some way relevant[.]” State v. Vallejos, 98 N.M. 798, 799, 653 P.2d 174,
175 (Ct. App. 1982) (quoting 4 Weinstein, supra, ¶ 801(d)(2)(A)[01] (1981)).
{48} We hold that Guest established the requisite foundation for admission of the documents
into evidence as an admission by a party-opponent. Specifically, Guest testified that the
documents were Allstate’s documents that were provided to her by Allstate’s counsel.
Moreover, any doubt that these documents were prepared by Allstate or at Allstate’s instruction
was resolved by the subsequent testimony of the assistant vice-president of claims for Allstate,
that the McKinsey documents contained both documents prepared by Allstate and documents
prepared by the McKinsey Corporation at Allstate’s request.
{49} Allstate also contends that the trial court erred in balancing the probative value against
the prejudicial effect of the McKinsey documents. To the extent Allstate cites Ohlson v. Kent
Nowlin Construction Co., 99 N.M. 539, 660 P.2d 1021 (Ct. App. 1983), for the proposition that
the McKinsey documents were not relevant and their probative value was outweighed by their
prejudicial effect because they constitute evidence of “unrelated matters,” we disagree. As
discussed above, the McKinsey documents are not “unrelated” to the current litigation. To the
contrary, there was testimony at trial that the possibility that the McKinsey documents would
be made public was the impetus for Allstate attempting to secure a global settlement, and led to
Allstate’s pressure on Guest to settle. The McKinsey documents therefore bear directly on how
Allstate treated Guest and on Allstate’s withdrawal of Guest’s defense for failure to settle.
Accordingly, we conclude that Allstate has not demonstrated that the trial court abused its
discretion in its Rule 11-403 determination. See City of Santa Fe v. Komis, 114 N.M. 659, 663,
845 P.2d 753, 757 (1992) (“The trial court is vested with a great deal of discretion in applying
Rule [11-]403, and we will reverse the trial court’s decision to admit or exclude evidence, only
upon a showing that the court abused its discretion.”).
{50} Finally, to the extent that Allstate raises other evidentiary issues, but fails to provide
legal argument or citation to authority, we do not review those issues. See Wilburn, 110 N.M.
16
at 272, 794 P.2d at 1201.
V. DAMAGES
{51} Allstate raises several challenges to the jury award of damages, and Guest challenges the
trial court reduction of the punitive damages in her cross-appeal. Because we conclude that
Guest was not entitled to recover damages based on future earnings and we remand for a new
trial on those damages to which Guest is entitled, we do not address Allstate’s other arguments
or Guest’s challenge to the trial court reduction of the punitive damages.
{52} Allstate argues that Guest’s lost income as a result of Guest closing her law practice was
not within the contemplation of the parties as a measure of damages arising from the breach of
the contract to defend and indemnify and that the damage award was speculative. Specifically,
Allstate contends that because of the nature of their relationship—an at-will, attorney-client
relationship—the parties did not contemplate loss of future earnings because Allstate had the
right to terminate Guest’s representation at any time and proof of future earnings was purely
speculative because there was no obligation that the attorney-client relationship continue.
{53} The contract that was breached was the contract by Allstate to defend and indemnify
Guest. On the other hand, irrespective of the contract, the client relationship between Allstate
and Guest was terminable at will. “Under contract principles, an injured party is entitled to all
damages that flow as a natural and probable consequence from a breach,” Exum v. Ferguson,
97 N.M. 122, 123, 637 P.2d 553, 554 (1981), and for “such consequential damages as were
within the contemplation of both parties at the time of contracting.” Camino Real Mobile Home
Park P’ship v. Wolfe, 119 N.M. 436, 446, 891 P.2d 1190, 1200 (1995) (internal quotations marks
omitted) (citing 3 Dan B. Dobbs, Dobbs Law of Remedies § 12.4(6), at 91 (2d ed. 1993) (“[T]he
scope of liability is limited to the risks or types of losses which the parties meant his
performance to protect against.”)). The contemplation of damages rule “anticipates an explicit
or tacit agreement by the defendant ‘to respond in damages for the particular damages
understood to be likely in the event of a (sic) breach.’” Id. (quoting Wall v. Pate, 104 N.M. 1,
2, 715 P.2d 449, 450 (1986)). “Generally, damages must be proven with reasonable certainty.”
Smith & Marrs, Inc. v. Osborn, 2008-NMCA-043, ¶ 23, 143 N.M. 684, 180 P.3d 1183.
“Damages which are speculative, conjectural, or remote are not to be considered for
compensation.” Komis, 114 N.M. at 662, 845 P.2d at 756 (internal quotation marks and citation
omitted).
{54} Allstate argues, based on Santa Fe Custom Shutters & Doors, Inc. v. Home Depot U.S.A.,
Inc., 2005-NMCA-051, 137 N.M. 524, 113 P.3d 347, that where a contract is at-will, future
profits are not within the contemplation of the parties. In Santa Fe Custom Shutters & Doors,
Inc., a local manufacturer entered into an oral agreement of an undefined duration with Home
Depot that was terminable at will. Id. ¶¶ 3-4. When Home Depot suddenly terminated the
business relationship, the manufacturer sued and was awarded compensatory damages based on
its anticipated sales over a five-year period subsequent to Home Depot’s termination of the
agreement. Id. ¶¶ 6-7. On appeal, we agreed with Home Depot’s argument that “[t]he essence
17
of the at-will doctrine is the right of either party to cease doing business without liability for
future profits the other party hopes it will earn if the relationship continues.” Id. ¶ 43 (alteration
in original) (internal quotation marks omitted).
{55} Guest attempts to distinguish Santa Fe Custom Shutters & Doors, Inc. on the basis that
there was no breach of contract in that case, while here, Allstate breached its contract with Guest
to provide a defense and indemnification. While we accept this distinction, it does not
undermine the applicability of the general principle noted above. A number of other
jurisdictions have likewise held that future profits are not available where a business relationship
is terminable at will. See, e.g., All Line, Inc. v. Rabar Corp., 919 F.2d 475, 480 (7th Cir. 1990)
(“The remedy for a breach of a terminable-at-will contract is pre-termination lost profits only.”);
Kinsey v. Cendant Corp., 521 F. Supp. 2d 292, 308 (S.D.N.Y. 2007) (“Damages for anticipated
lost salary are inappropriate where employment is at will. Even if [the plaintiff] had accepted
the brokerage position, he could have been terminated the next day. [Thus,] he cannot establish
he would have received the salary he contends he forfeited in reliance on [the defendant’s]
promises.” (alterations in original) (internal quotation marks and citation omitted)); Dalton
Props., Inc. v. Jones, 683 P.2d 30, 31 (Nev. 1984) (“Where a contract provides that either party
may terminate the agreement at will, the party so terminated may not recover damages for those
profits that he purportedly could have gained over the maximum life of the contract.”); Sports
& Travel Mktg., Inc. v. Chicago Cutlery Co., 811 F. Supp. 1372, 1378 (D. Minn. 1993) (“[A]
party is generally not entitled to lost future profits arising from a contract that is terminable at
will.”).
{56} We hold that, based on the specific circumstances presented by this case, future wages
or earnings that might have arisen from the relationship that was terminable at will are not
recoverable. Moreover, such damages are too speculative to permit recovery. See Bakotich v.
Swanson, 957 P.2d 275, 278-79 (Wash. Ct. App. 1998) (noting that in the employment context,
“an at-will employment contract anticipates that the employer may repudiate at any time without
ramification,” and that, as a result, “any lost wages or benefits [are] highly speculative and
properly excluded by the trial court”). Guest concedes that her relationship with Allstate could
be terminated at any time. As a result, we conclude that Guest was unable to prove future
earnings with any reasonable degree of certainty. See Lovington Cattle Feeders, Inc. v. Abbott
Labs., 97 N.M. 564, 568, 642 P.2d 167, 171 (1982) (stating that “damages, to be recoverable,
must be proven with reasonable certainty and not be based upon speculation”); see also Kinsey,
521 F. Supp. 2d at 308 (holding that where the employment contract was at will, “there simply
can be no certainty” regarding whether the plaintiff would have remained employed long enough
for the benefit the plaintiff claims he lost to have accrued).
{57} To the extent that Guest asserts that the inducement for the defense and indemnification
contract was to avoid a conflict of interest so she could continue working for Allstate, there is
nothing about Guest’s ability to continue working for Allstate, which established Guest was
entitled to continue representing Allstate, thus altering the nature of the at-will relationship.
There was, therefore, insufficient evidence for a reasonable jury to conclude that lost profits
were within the contemplation of both parties at the time the contract to defend and indemnify
18
was formed. See Landavazo, 111 N.M. at 138, 802 P.2d at 1284 (“Substantial evidence is such
relevant evidence that a reasonable mind would find adequate to support a conclusion.”).
{58} Finally, Guest argues that, although her relationship with Allstate was terminable at will,
“[i]t does not follow . . . that she has no recoverable damages as a result of its breach of its
contract to defend and indemnify her.” We agree. While we hold that Guest is not entitled to
lost profits due to her inability to continue representing Allstate, Guest presented substantial
evidence that recovery for the cost of defense and any judgment against her was within the
contemplation of the parties at the time of contracting. However, it is unclear from the record
what portion of the jury’s award was based on Guest’s testimony regarding her lost profits and
what portion was based on Guest’s attorney fees and costs in defending against the Durhams’
claims. For this reason, we remand this matter to the trial court for a new trial on those damages
to which Guest is entitled. Furthermore, since punitive damages “must be reasonably related to
the injury and to any damages given as compensation,” UJI 13-1827 NMRA, we also remand
the punitive damage award to be retried.
VII. ATTORNEY FEES
{59} Finally, we turn to the issue of attorney fees. Guest claims that the trial court erred by:
(1) refusing to allow her to present evidence to the jury of her attorney fees and expenses
incurred in the present case as an item of damages, and (2) refusing to grant her attorney fees
pursuant to her post-trial motion. Guest’s argument in support of attorney fees is premised on
her assertion that her contract with Allstate was a contract of insurance. We conclude that
Guest’s contract with Allstate is not a contract of insurance and that the trial court did not abuse
its discretion in denying Guest’s requests for attorney fees. See G & G Servs., Inc., 2000-
NMCA-003, ¶ 51 (“We review the grant or denial of attorney fees for an abuse of discretion.”).
{60} Guest asks this Court to view her contract with Allstate as a contract of insurance and
to extend to her the rights and protections that are afforded to insureds. See Dellaira v. Farmers
Ins. Exch., 2004-NMCA-132, ¶ 11, 136 N.M. 552, 102 P.3d 111 (stating that “[t]he relationship
between insurer and insured is a special relationship under New Mexico law”); NMSA 1978,
§ 39-2-1 (1977); NMSA 1978, § 59A-16-30 (1990). Although we acknowledge that an
insurance contract is a contract of indemnification, not all indemnification contracts are
insurance contracts. See 1 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 1:7, at 1-13
(3d. ed. 2005) (“While a policy of insurance . . . is basically a contract of indemnity, not all
contracts of indemnity are insurance contracts; rather, an insurance contract is one type of
indemnity contract.” (footnote omitted)). The mere fact that the contract was a contract for
indemnification written by an insurance company is insufficient to make it an insurance contract.
Instead, whether Guest’s contract with Allstate was an insurance contract depends not on “the
character of the company writing it, the nomenclature used, or the manner or mode of affording
insurance, but [on] the nature of the contract.” 1 Russ & Segalla, supra, § 1:8, at 1-14.
{61} The primary difference between an ordinary contract and an insurance contract is risk
distribution. See 1 Eric Mills Holmes & Mark S. Rhodes, Appleman on Insurance § 1.3, at 10-
19
11 (2d ed. 1996) (“An insurance contract differs from the ordinary contract because of risk
distribution.”); 1 Holmes & Rhodes, supra, § 1.3, at 10 (“Risk sharing is the linchpin of
insurance and its accompanying body of law.”); see also Group Life & Health Ins. Co. v. Royal
Drug Co., 440 U.S. 205, 211 (1979) (“The primary elements of an insurance contract are the
spreading and underwriting of a policyholder’s risk.”), quoted with approval in N.M. Life Ins.
Guar. Ass’n v. Moore, 93 N.M. 47, 50, 596 P.2d 260, 263 (1979). While it is apparent that the
risk of the Durham litigation was shifted from Guest to Allstate under the terms of the contract,
Allstate points out, and Guest does not dispute, that the contract does not involve distribution,
or sharing, of the risk among others. See 1 Holmes & Rhodes, supra, § 1.3, at 10 (noting that
“[r]isk sharing connotes not only a transfer of risk (risk-shifting) to others but a distribution
(sharing) of the risk among the others”); Robert E. Keeton & Alan I. Widiss, Insurance Law §
1.3, at 13-14 (1988) (observing that not all methods of spreading risk require insurance).
Without the element of risk distribution, Guest’s contract with Allstate is no more than a private
indemnity agreement. See Lawyers Title Ins. Corp. v. New Freedom Mortgage Corp., 655
S.E.2d 269, 275 (Ga. Ct. App. 2007) (holding that a closing protection letter offering to
indemnify a mortgage company was not an insurance contract where, although issued by an
insurance company, there was no distribution of the risk).
{62} To the extent Guest argues her contract falls within the purview of the Insurance Code,
see NMSA 1978, §§ 59A-1-1 to 59A-59-4 (1993, as amended through 2007), we disagree.
Although Guest’s indemnification contract with Allstate may fit within the broad definition of
“insurance” provided in Section 59A-1-5, Guest’s contract with Allstate is not the type of
transaction we believe the Legislature intended to address in enacting the Insurance Code. New
Mexico appellate courts have acknowledged that the reasons a special and unique relationship
between an insurer and an insured is recognized is due to “the inherent lack of balance in and
adhesive nature of the relationship, as well as the quasi-public nature of insurance and the
potential for the insurer to unscrupulously exert its unequal bargaining power at a time when the
insured is particularly vulnerable.” See Dellaira, 2004-NMCA-132, ¶ 14 (internal quotation
marks and citations omitted); Bourgeous v. Horizon Healthcare Corp., 117 N.M. 434, 439, 872
P.2d 852, 857 (1994) (discussing the inherent imbalance in relationships between insurers and
insureds and the superior bargaining position of insurers). The Insurance Code is based on many
of the same concerns. See, e.g., § 59A-16-20.
{63} Here, there was no inherent imbalance in the bargaining power of the parties. Instead,
Guest, an attorney, testified that she spoke with Allstate representatives and Allstate attorneys
in an effort to negotiate the contract. Of equal importance, as is clear from the testimony
presented at trial, Guest was not compelled to enter into a contract of adhesion. To the contrary,
both parties freely negotiated the terms of the contract as they saw fit. See Albuquerque Tire Co.
v. Mountain States Tel. & Tel. Co., 102 N.M. 445, 448, 697 P.2d 128, 131 (1985) (defining a
contract of adhesion as “a standardized contract prepared entirely by one party to the transaction
for the acceptance of the other,” where “due to the disparity in bargaining power between the
draftsman and the second party, [the contract] must be accepted or rejected by the second party
on a ‘take it or leave it’ basis, without opportunity for bargaining and under such conditions that
the ‘adherer’ cannot obtain the desired product or service save by acquiescing in the form
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agreement” (emphasis, alteration, internal quotation marks, and citation omitted)). We therefore
conclude that the nature of the transaction in this case does not warrant application of the
protections arising from an insurer-insured relationship.
{64} Guest argues based on Lieber v. ITT Hartford Insurance Center, Inc., 15 P.3d 1030 (Utah
2000), that she should have been permitted to present evidence of the attorney fees she incurred
in the prosecution of this case against Allstate as an item of damages. However, Lieber is
premised on the existence of an insurance contract, see id. at 1032-33, and, thus, does not apply
in the context before us. Moreover, attorney fees incurred in the enforcement of a right to
indemnification are not a natural and probable consequence of the breach. See First Nat’l Bank
of Clovis v. Diane, Inc., 102 N.M. 548, 555, 698 P.2d 5, 12 (Ct. App. 1985) (holding that the
defendant was only permitted to recover attorney fees as an item of special damages with respect
to the underlying action in which the defendant was sued and was not permitted to recover
attorney fees incurred in the malpractice portion of the case as damages).
{65} Finally, Guest has not identified any statutory or contractual provision, not premised on
the existence of an insurance contract, that permits her to recover attorney fees. See N.M. Right
to Choose/NARAL v. Johnson, 1999-NMSC-028, ¶ 9, 127 N.M. 654, 986 P.2d 450 (stating that
New Mexico adheres to the American rule that, absent statute, court rule, or contractual
agreement, litigants are responsible for their own attorney fees). We find no error in the trial
court refusal to permit Guest to present evidence of her attorney fees incurred in the prosecution
of this case or the trial court refusal to award attorney fees based on Guest’s post-trial motion.
CONCLUSION
{66} We affirm the jury verdict with respect to liability, reverse the award of compensatory
and punitive damages, and remand for a new trial on compensatory and punitive damages
consistent with this Court’s opinion. We further affirm the trial court refusal to award Guest
attorney fees.
{67} IT IS SO ORDERED.
MICHAEL E. VIGIL, Judge
WE CONCUR:
JAMES J. WECHSLER, Judge
RODERICK T. KENNEDY, Judge
Topic Index for Guest v. Allstate Insurance Co., No. 27,253
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AE APPEAL AND ERROR
AE-PA Preservation of Issues for Appeal
AT ATTORNEYS
AT-CI Conflict of Interest
AT-FG Fees, General
AT-LM Legal Malpractice
AT-PR Professional Responsibility
CN CONTRACTS
CN-BR Breach
CN-CS Consideration
CN-GF Covenant of Good Faith and Fair Dealing
EV EVIDENCE
EV-AE Admissibility of Evidence
EV-PB Probative Value vs. Prejudicial Effect
IN INSURANCE
IN-AF Attorney Fees
IN-DD Duty to Defend
IN-IY Indemnity
TR TORTS
TR-MG Malpractice, General
TR-PF Prima Facie Tort
RE REMEDIES
RE-CD Compensatory Damages
RE-FD Future Damages
RE-ID Indemnification
RE-LF Lost Profits
RE-PU Punitive Damages
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