Michael Gallner v. C. Gregg Larson

Michael Gallner (Gallner) filed a complaint against C.

Gregg Larson alleging breach of fiduciary duty arising out of

the attorney-client relationship, breach of fiduciary duty arising

out of the duty of a trustee, and conversion. Gallner sought

either money damages or the imposition of an oral or constructive

trust as to proceeds paid out to Larson as beneficiary of

various life insurance policies following the death of Judy

Hoffman (Judy).

The district court dismissed Gallner's claims and entered

judgment in Larson's favor. Gallner appeals. We affirm.

II. FACTUAL BACKGROUND

Gallner and Judy were married in 1982 and divorced in

1994. There was one son as a result of their marriage, Jordan

Gallner. Jordan is the father of Makenzie Gallner.

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Judy was a resident of Omaha, Nebraska, and an attorney

licensed to practice law. She died intestate on December

10, 2007. Gallner was named personal representative of

her estate.

The present litigation involves Larson, who was a friend

of Judy's. Judy and Larson met in the early 1990's when

both represented different defendants in a federal criminal

case. Over the years, Larson assisted Judy in various legal

matters, including continuing legal matters relating to her

divorce from Gallner. Larson, who resides in another state,

would also periodically visit Omaha for personal and professional

activities. On those visits, Larson would sometimes

stay at Judy's home. Judy attended Larson's wedding and

also attended Larson's wife's funeral. Judy introduced Larson

to her parents. Jordan testified that Larson was a close friend

of Judy's and that he, Jordan, telephoned Larson upon Judy's

eventual death.

In November 1999, Judy engaged an attorney to draft a trust

document. That document named Judy as trustee and Larson

as successor trustee. Jordan was the beneficiary under the

trust. In early 2000, Judy sent a copy of the trust document

to Larson. Larson testified that he notified Judy he was not in

a position to serve as trustee given his distance from Omaha.

Larson provided no legal advice to Judy concerning the trust

document. There is no indication that Judy ever executed this

trust document.

At the same time Judy sent Larson this draft trust, she also

sent two other documents. One, exhibit 158, was a handwritten

note dated January 27, 2000, purportedly from Judy to Larson.

This note read in full:

Gregg —

I looked for you on the news — thought you might

be handing out your business cards after that snowstorm

interstate accident[.] Lots of broken bones & wrongful

deaths — That was sick, wasn't it?

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Anyway, when you can, look this over. You're the

executor or Trustee or whatever, if I die.

Also, I finally got approved on the life insurance.

You're the straight-up beneficiary on that. It's yours.

Gallner objected to exhibit 158 on best evidence grounds

because the exhibit was a photocopy of the original note,

which was no longer available. That objection was overruled.

The other document was the beneficiary designation on a

$100,000 American Family Life Insurance Company policy

(American Family policy). Apparently, Jordan had originally

been the primary beneficiary, but in late November 1999, Judy

changed the primary beneficiary to Larson, who was listed as

a "family friend.” The contingent beneficiary had been, and

remained, Judy's father.

In November 2000, Judy obtained employment as an instructor

at a community college in Omaha. She met with the coordinator

of benefits and compensation at the beginning of

her employment. Judy's benefits included a "UnumProvident”

life insurance policy (Unum policy) and a 403(b) retirement

account. The record shows that the 403(b) account was split

equally between a Fidelity Investments account and a TIAACREF

account.

On the Unum policy, Judy designated Larson as her primary

beneficiary and Jordan as her contingent beneficiary.

On the Fidelity Investments account, Judy designated Larson

as primary beneficiary and Jordan as contingent beneficiary.

Judy did not make any mention of a trust or trustee on either

of Larson's designations. Larson is identified as "friend/atty”

where the relationship is requested.

However, on the TIAA-CREF account, Judy designated

Jordan as primary beneficiary and Larson as contingent beneficiary.

Jordan was also designated as primary beneficiary for

distribution of final pay and accumulated leave pay from the

college, with Larson listed as contingent beneficiary.

In the fall of 2007, Judy engaged attorney Larry Forman to

draft a last will and testament. The draft will and cover letter

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were sent to Judy on October 11. The will designated the distribution

of Judy's tangible personal property and "insurance

policies and claims under such policies on such property”

to Jordan, with the remainder of her estate to Jordan and

Makenzie. The trustee and personal representative under this

will was to be Larson. On its face, the will does not indicate

any intention with regard to any life insurance policies, nor

does it contemplate any trusts funded by life insurance policies

or retirement accounts. The will does not name any of the

assets or funds at issue in this case.

Forman testified at trial that Judy identified her assets to

include her house, a First National Bank account, a "Provident

Trust,” her TIAA-CREF account, and shares of "Heinz and UP

stock.” It is not clear from the record whether the "Provident

Trust” and the UnumProvident policy were in fact the same

asset or two separate assets. In addition, Judy also indicated

to Forman that she had a 401K account. In fact, Judy had

a 403(b) retirement account; the parties appear to dispute

whether Judy was referring to the 403(b) account when she

indicated she had a 401K. Forman further testified that Judy

did not mention any life insurance policies. In his testimony,

Forman indicated that life insurance proceeds were not contemplated

to be included in the estate as the will was drafted;

rather, the testamentary trust created by the draft will included

only the "residue and remainder of the estate.” This will was

apparently never executed.

Judy died on December 10, 2007. Jordan telephoned Larson

that day to inform him of Judy's death. Larson testified that he

spoke to Jordan twice on December 10 and once on December

11. Jordan agreed that they spoke twice on December 10, but

testified they did not speak on December 11.

Jordan's and Larson's accounts of their conversations also

differ. Jordan testified that Larson told him there were "policies”

for which Larson was trustee and that Larson would

be there to help Jordan take care of Makenzie. Larson, on

the other hand, disputed that he mentioned any "policies” or

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indicated that he was a trustee. Larson further noted that he

was unaware of the existence of multiple policies, had in 2000

declined to serve as trustee, and at the time of these conversations,

was unaware of the 2007 draft will.

Larson further claimed that he spoke to Gallner, who told

him that Forman had drafted a will for Judy. Gallner denied

having informed Larson of that fact and further noted that he

disliked Larson such that he would not have conversed with

him at all. The district court agreed that Larson did not learn

of the will from Gallner. Rather, the district court found that

Larson likely learned of the 2007 will from Judy.

The district court found Jordan's recollection of his conversation

with Larson to be more credible. The district court

concluded that the telephone conversation between Jordan

and Larson created the inference that Larson knew Forman

had been engaged to draft a will and that there might have

been some duties for Larson and some "'policies'” to be held

in trust.

Larson contacted Forman on December 11, 2007, in order to

obtain a copy of the draft will. On December 13, a copy of that

will was faxed to Larson.

As found by the district court, Larson eventually received

$236,024.33 from the two life insurance policies and the

retirement account. Upon learning that Larson was the beneficiary

on these policies and the retirement account, Gallner, as

personal representative of Judy's estate, demanded return of

the funds. Gallner filed a complaint against Larson on May

2, 2008. Following a bench trial, the district court found for

Larson and against Gallner. This appeal followed.

III. ASSIGNMENTS OF ERROR

Gallner assigns that the district court erred in (1) determining

that an express trust needed to be created in order to

find Larson liable and in placing the burden to prove such

trust on Gallner, (2) failing to impose a constructive trust, (3)

failing to find that Larson deviated from the standard of care

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and committed legal malpractice by accepting and retaining

Judy's death benefit funds given his status as her attorney,

and (4) admitting exhibit 158 into evidence.

IV. STANDARD OF REVIEW

[1,2] An action for conversion sounds in law.1

A district

court's factual determination in a bench trial in an action at law

has the same effect as a jury verdict and will not be set aside

unless clearly wrong.2

[3-5] An action to impose a constructive trust sounds in

equity.3

An action to establish an oral trust also sounds in

equity.4

In an appeal of an equitable action, an appellate court

tries factual questions de novo on the record, provided that

where credible evidence is in conflict on a material issue of

fact, the appellate court considers and may give weight to the

fact that the trial judge heard and observed the witnesses and

accepted one version of the facts rather than another.5

[6] A trial court has the discretion to determine the relevancy

and admissibility of evidence, and such determinations

will not be disturbed on appeal unless they constitute an abuse

of that discretion.6

V. ANALYSIS

On appeal, Gallner assigns four errors to the district court,

which can be restated as two: that Larson breached some duty

owed to Judy and, as a result, he should be liable for conversion

or a constructive trust should be placed on the insurance

proceeds, and that the district court erred in admitting

1 Krzycki v. Krzycki, 284 Neb. 729, 824 N.W.2d 659 (2012).

2 Id.

3 Eggleston v. Kovacich, 274 Neb. 579, 742 N.W.2d 471 (2007).

4 Gasper v. Moss, 204 Neb. 24, 281 N.W.2d 213 (1979).

5 Eggleston, supra note 3.

6 In re Invol. Dissolution of Wiles Bros., 285 Neb. 920, 830 N.W.2d 474

(2013).

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exhibit 158, the photocopy of the note purportedly from Judy

to Larson.

1. Admissibility of Exhibit 158

We begin with Gallner's contention that the district court

erred in overruling his best evidence objection to exhibit 158,

because the disposition of this assignment of error impacts the

remainder of our analysis. We review the district court's decision

for an abuse of discretion.7

Exhibit 158 was the note from Judy to Larson informing

Larson of the 1999 trust and the American Family insurance

policy. The 2-page note itself is handwritten, but "Judy K.

Hoffman” was preprinted across the top of the first page. In

addition, the first page of the note was written on ruled paper,

while the second page was not. Gallner argues that the photocopy

of the note which was admitted into evidence was not

the best evidence and that Larson should have had to produce

the original. Larson explained that the original was not available,

though he did not explain why.

Neb. Rev. Stat. § 27-1002 (Reissue 2008) provides:

To prove the content of a writing, recording, or photograph,

the original writing, recording, or photograph is

required, except as otherwise provided in these rules or

by Act of Congress or of the Legislature of the State of

Nebraska or by other rules adopted by the Supreme Court

of Nebraska.

Neb. Rev. Stat. § 27-1003 (Reissue 2008) provides: "A duplicate

is admissible to the same extent as an original unless (1)

a genuine question is raised as to the authenticity of the original

or (2) in the circumstances it would be unfair to admit the

duplicate in lieu of the original.”

In this instance, Jordan testified that he believed the handwriting

on the note to be Judy's. But Jordan also testified that

Judy usually signed her name to her notes. He also commented

upon the lack of lines on the second page of the note.

7 See id.

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Section 27-1003 allows the admissibility of a duplicate

unless a genuine question is raised as to the authenticity of

the original. Jordan's testimony does not reach this threshold.

The fact that the note was unsigned does not seem unusual

given that Judy's name was printed at the top of the page. And

the lack of lines on the second page suggests that the second

page was written on the reverse side of the first page. As

such, the district court did not abuse its discretion in admitting

exhibit 158.

2. Breach of Fiduciary Duty

(a) Attorney/Client Relationship

Gallner also argues that Larson owed Judy a fiduciary

duty as her attorney. Gallner asserts that Larson should have

advised Judy to seek additional independent legal counsel

upon learning that he had been named as a beneficiary on

the American Family policy. Gallner further argues that this

failure tainted Judy's designation of Larson as primary beneficiary

on the Unum policy and the Fidelity Investments

account. Gallner also contends that Larson committed professional

malpractice resulting in a breach of Larson's fiduciary

duty to Judy.

[7,8] Where a fiduciary or confidential relationship exists

between the parties to a transaction, the burden of proof is

upon the party holding the fiduciary or confidential relationship

to establish the fairness, adequacy, and equity of the

transaction.8

This rule rests on the premise that it is the duty

of the fiduciary to fully inform the other party of all the

facts relating to the subject matter of the transaction which

come to the knowledge of the fiduciary and which are material

for the other party to know for the protection of that

party's interest.9

8 Bauermeister v. McReynolds, 254 Neb. 118, 575 N.W.2d 354 (1998).

9 Id.

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Both the Code of Professional Responsibility, which was

in effect at the time this designation was made, and the now

effective Nebraska Rules of Professional Conduct, address the

issue of gifts from clients to attorneys. The code provides:

A lawyer should not suggest to his or her client that a

gift be made to the lawyer or for the lawyer's benefit.

If a lawyer accepts a gift from his or her client, the lawyer

is peculiarly susceptible to the charge that he or she

unduly influenced or overreached the client. If a client

voluntarily offers to make a gift to his or her lawyer, the

lawyer may accept the gift, but before doing so, the lawyer

should urge that the client secure disinterested advice

from an independent, competent person who is cognizant

of all the circumstances. Other than in exceptional

circumstances, a lawyer should insist that an instrument

in which his or her client desires to name the lawyer

beneficially be prepared by another lawyer selected by

the client.10

The rules seem to impose an even stricter prohibition:

A lawyer shall not solicit any substantial gift from

a client, including a testamentary gift, or prepare on

behalf of a client an instrument giving the lawyer or

person related to the lawyer any substantial gift unless

the lawyer or other recipient of the gift is related to

the client.11

But the comments to the rules further note:

A lawyer may accept a gift from a client, if the transaction

meets general standards of fairness. For example, a

simple gift such as a present given at a holiday or as a

token of appreciation is permitted. If a client offers the

lawyer a more substantial gift, paragraph (c) does not

prohibit the lawyer from accepting it, although such a

10 Canon 5, EC 5-5, of the Code of Professional Responsibility.

11 Neb. Ct. R. of Prof. Cond. § 3-501.8(c).

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gift may be voidable by the client under the doctrine of

undue influence, which treats client gifts as presumptively

fraudulent. In any event, due to concerns about

overreaching and imposition on clients, a lawyer may not

suggest that a substantial gift be made to the lawyer or for

the lawyer's benefit, except where the lawyer is related to

the client as set forth in paragraph (c).

. . . If effectuation of a substantial gift requires preparing

a legal instrument such as a will or conveyance

the client should have the detached advice that another

lawyer can provide.12

The rules further provide guidance in interpretation:

The Rules of Professional Conduct are rules of reason.

. . . Some of the Rules are imperatives, cast in the

terms "shall” or "shall not.” These define proper conduct

for purposes of professional discipline. Others, generally

cast in the term "may,” are permissive and define

areas under the Rules in which the lawyer has discretion

to exercise professional judgment. . . . Many of the

Comments use the term "should.” Comments do not add

obligations to the Rules but provide guidance for practicing

in compliance with the Rules.

. . . .

. . . Violation of a Rule should not itself give rise to a

cause of action against a lawyer nor should it create any

presumption in such a case 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

12 § 3-501.8, comments 6 and 7.

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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.

Nevertheless, since the Rules do establish standards

of conduct by lawyers, a lawyer's violation of a Rule

may be evidence of breach of the applicable standard

of conduct.13

[9] The record clearly shows that at the time Judy made

Larson a beneficiary on the American Family policy, he was

representing her in legal matters. It is axiomatic that the relationship

between attorney and client is a fiduciary or confidential

one,14 and there is nothing that suggests the informality

between Judy and Larson makes the relationship less so. We

conclude that because Larson was Judy's attorney, he has the

burden to show that the gift from Judy was fair.

We conclude that Larson has met his burden. As the district

court noted, Judy was herself a lawyer. She did not suffer

from any diminished mental capacity and was not elderly or

incapacitated. She understood the consequences of her designation,

as is evidenced by exhibit 158.

In addition, at the time Judy first contacted Larson regarding

the American Family policy, she had already also engaged the

services of another lawyer for estate planning purposes. She

did not seek Larson's advice with regard to the drafting of the

unexecuted trust or with respect to the change in beneficiary

on the American Family policy. Larson did not seek the designation

as beneficiary and was unaware of it until after the

designation was made. And because Larson had done much

uncompensated legal work for Judy, the designation seemed

reasonable to Larson.

Of course, as counsel for Larson himself noted at oral arguments,

it would have been preferable if Larson had simply

13 Neb. Ct. R. of Prof. Cond. Scope, comments 14 and 20.

14 Gonzalez v. Union Pacific RR. Co., 282 Neb. 47, 803 N.W.2d 424 (2011).

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told Judy to obtain independent legal advice regarding the

designation. Indeed, that would be the best practice in such

situations. But on these facts, Larson's failure to do so does

not defeat the designation.

Moreover, we note that Gallner essentially argues that

Larson violated the disciplinary rules applicable to Larson as

an attorney, and therefore breached a duty to Judy. But as we

note above, the rules are designed to provide guidance and "not

designed to be a basis for civil liability.”

[10] Gallner next asserts that Larson breached his fiduciary

duty when he committed professional malpractice. In a

civil action for legal malpractice, a plaintiff alleging professional

negligence on the part of an attorney must prove three

elements: (1) the attorney's employment, (2) the attorney's

neglect of a reasonable duty, and (3) that such negligence

resulted in and was the proximate cause of loss to the client.15

When a plaintiff asserts attorney malpractice in a civil

case, the plaintiff must show that he or she would have been

successful in the underlying action but for the attorney's

negligence.16

But there is simply no evidence of an employment relationship

regarding estate matters upon which to base a malpractice

claim. Larson plainly did not represent Judy on any estate planning

matter. Nor can Gallner show a neglect of duty. We concluded

above that Larson showed on these facts the designation

of him as beneficiary was fair. Finally, Gallner cannot show

any loss, because as noted above, Judy's father, not Jordan

or the estate, was the contingent beneficiary on the American

Family policy. We find no merit to this argument.

(b) Trustee

Gallner also argues that Larson breached the fiduciary duty

he owed to Judy as trustee of her trust. Gallner contends that

15 Harris v. O'Connor, 287 Neb. 182, 842 N.W.2d 50 (2014).

16 Id.

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an oral trust was created for which Larson was the trustee and

that the funds designated to Larson were actually given to

him as trustee for Jordan and Makenzie.

But the evidence does not support the creation of a trust,

oral or otherwise. There is evidence of a 1999 trust for which

Larson was listed as trustee. But Larson testified that he

informed Judy that he could not serve as trustee, and in fact,

the 1999 trust was never executed. There is also evidence of a

testamentary trust from a 2007 will for which Larson was listed

as trustee. But that will was also never executed. Testimony

from the attorney who drafted that will suggests that he was

not fully informed of the existence of the assets now at issue

in this appeal.

Finally, the designations themselves refute the assertion that

Larson was given this property as a trustee. The American

Family policy names the primary beneficiary as Larson, a

"family friend.” The Unum policy and Fidelity Investments

account listed the primary beneficiary as Larson, a "friend/

atty.” At the time Judy made Larson the beneficiary to the

American Family policy, she also sent him the note informing

him that he was the "straight-up beneficiary” and that

"[i]t's yours.”

And though the district court may have found that prior to

Judy's death Larson was aware of the 2007 will, the district

court also found that Jordan's

recollection [that Larson informed him that Judy left

a will/trust] is clearly not specific enough to support

the conclusion that [Judy] had declared her intention

to create a trust from the Unum policy and the Fidelity

account. Larson's knowledge that [Judy] may have a will

and he may be a trustee is not evidence of [Judy's] intent

to create an oral trust with the Unum policy proceeds or

the Fidelity account.

To the extent that the district court was making credibility

determinations regarding Jordan's, Gallner's, and Larson's

conflicting testimony, we defer to those determinations. And

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upon our de novo review, we agree with the district court that

the record supports the conclusion that there was no oral trust

created in this case. Moreover, Larson engaged in no fraud

or misrepresentation such that the imposition of a constructive

trust would be appropriate or necessary. Nor did Larson

unlawfully convert the property, as he was the designated beneficiary

of the proceeds. There is no merit to Gallner's argument

on this point.

Gallner's assignments of error are without merit.

The decision of the district court is affirmed.

Affirmed.