Local attorney prevails in appeal

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SANDPOINT — The Idaho Court of Appeals is affirming a district judge’s dismissal of a legal malpractice case against a Sandpoint attorney who bought the cause of action against him through bankruptcy proceedings.

Robert M. Michael filed the malpractice suit against his attorney, Stephen Smith, after a judgment was entered against Michael in a 2003 breach of contract case in Boundary County. Michael filed for bankruptcy protection shortly after the judgment was entered in 2005.

Michael argued that Smith failed to properly prepare a counterclaim and properly plead fraud or request punitive damages.

Michael accused Smith of fraud, misrepresentation and fraudulent concealment.

Michael’s suit against Smith became part of the bankruptcy estate. The bankruptcy discharge was granted in 2006 and the estate was closed the following year, but Michael moved to reopen the bankruptcy proceedings in 2008.

The bankruptcy trustee, however, declined to enter into the case and opted instead to sell Michael’s cause of action against Smith at auction as part of the estate. The 9th U.S. Circuit Court of Appeals holds that causes of action owned by the trustee are intangible items of property of the estate and may be sold.

Smith outbid Michael and was issued a bill of sale for all right, title and interest in the litigation, according to the state appeals court’s July 15 ruling. Smith paid $16,600 for the cause of action, which Michael estimated was worth upwards of $600,000.

Smith filed a motion to dismiss the case against him and 1st District Judge John Mitchell granted the motion.

Michael appealed on a number of grounds, arguing Mitchell erred in dismissing the case. Michael also asserted that his motions for a default judgment against Smith were improperly denied and that Mitchell committed misconduct.

But appeals court Judge Sergio Gutierrez found that the various motions were properly handled and that the claims of judicial misconduct were unfounded.

“Michael has failed to demonstrate any judicial misconduct affecting the district court’s decisions reviewed on this appeal,” Gutierrez wrote in the 15-page opinion.

Smith sought attorney fees on grounds Michael’s appeal was brought frivolously, but the appeals court declined to award them to Smith.

“We are not convinced that the entirety of Michael’s appeal was pursued frivolously, unreasonably, or without foundation such that the award of attorney fees is appropriate,” Gutierrez said.

Fellow appeals judges David Gratton and John Melanson concurred with Guiterrez’s findings.

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