Lawyers as defendants in 2015, Part 1

Last Friday we concluded with a discussion of the first prong of the anti-SLAPP statute in the context of Bergstein v. Strook & Strook & Lavan, 236 Cal. App. 4th 793 (2015). ["Lawyers as defendants in 2015," Jan. 8]. Now, we continue with Bergstein's statute of limitations analysis, before addressing cases involving the favorable termination element in malicious prosecution actions, and the duty and causation elements underlying malpractice claims, each of which was a focus of the Courts of Appeal in 2015.

Statute of Limitations

While it has been long-settled that the attorney statute of limitations (Code of Civil Procedure Section 340.6) applies to all claims against attorneys arising from the performance of professional services (other than fraud), at least one recent case suggested there are limits on the type of claims the statute may apply to (claims for malicious prosecution, see Roger Cleveland Golf Company Inc. v. Krane & Smith APC, 225 Cal. App. 4th 660 (2014)).

Bergstein addressed that issue as well. The plaintiffs alleged claims for aiding and abetting breach of fiduciary duty, and interference with contractual relations and prospective economic advantage, and contended that Section 340.6 did not apply because the conduct alleged was "independently tortious," distinct from the attorneys' performance of legal services. The court, however, was not persuaded to read another exception into the inclusiveness of the attorney statute of limitations, noting that it "applies to all actions 'against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services.'"

The state Supreme Court agreed in Lee v. Hanley, 61 Cal. 4th 1225 (2015), confirming that Section 340.6 applies to any claim "whose merits necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services." Nonetheless, the court determined the claim in Lee did not - even though it was a claim by a former client against his attorney.

Lee involved a claim for conversion based on allegations that the attorney-defendant had received a retainer fee yet had failed to reimburse the plaintiff for the unearned portions of the fee. The crucial factors in Lee were that the fees withheld were allegedly unearned and, therefore, not part of the professional services performed, and that the withholding of those "fees" occurred after the legal services had ended. At the same time, the court also disapproved of Roger Cleveland to the extent it imposed a separate statute of limitations for malicious prosecution claims against attorneys.

For those claims that do fall within Section 340.6, courts will continue to construe the timing of their accrual on the early side, as indicated by Shaoxing City Maolong Wuzhong Down Products Ltd. v. Keehn & Associates, 238 Cal. App. 4th 1031 (2015). There, the court affirmed a summary judgment ruling on statute of limitations grounds, concluding that the limitations period was triggered as early as when an underlying order in bankruptcy court precluded the plaintiffs from challenging a lien, which served to diminish the settlement value of the plaintiff's claim. The loss, according to the court, occurred for purposes of the statute of limitations as soon as the plaintiffs' negotiating position was merely weakened. That remained true even if the bankruptcy order could be later remedied.

Proximate Causation

Proximate causation was tested in two cases in 2015, Kumarapero v. Feldsted, 237 Cal. App. 4th 60, and Kemper v. County of San Diego, 242 Cal. App. 4th 1075 (2015), each of which reinforced its prominence as an essential element in malpractice cases.

Kumarapero, in fact, affirmed the sustaining of a demurrer in favor of the attorney-defendants on lack of proximate causation grounds even though the demurrer ruling was premised on independent grounds. The case arose out of a criminal prosecution against the plaintiff for forgery allegedly resulting from the attorney-defendants' advice. But the Kumarapero court noted that a forgery conviction would require proof of an intent to defraud by the plaintiff, intent which could not be imputed to the advice of the attorney-defendants. While the court acknowledged the existence of but-for causation, it was the proximate causation that was lacking since the attorney defendants could not reasonably foresee that the plaintiff would formulate the necessary intent, let alone that that independent development would lead to a criminal prosecution.

In Kemper, the plaintiff claimed the attorney-defendants were responsible for termination of the plaintiff's parental rights during an underlying custody dispute. In that underlying case, the plaintiff had asserted that her attorneys ineffectively represented her, but that allegation was disregarded on grounds that there was insufficient evidence to suggest that supposed effective representation would have preserved the plaintiff's parental rights.

Applying an expansive view of the collateral estoppel doctrine, the Kemper court refused to revisit that lack of causation finding, explaining that the causation element in the ineffective counsel claim was essentially the same as in a legal malpractice action, and holding that "we cannot say the outcome - termination of parental rights - would have been different had counsel provided what [the plaintiff] believes was effective representation" as the plaintiff's "own conduct established that she was unwilling and unable to adequately care for her child and thus she (and not her counsel) was responsible for the court's termination judgment."

Duty of Care to Third Parties in Probate Context

A malpractice plaintiff must also establish a duty of care, a difficult showing in the absence of a direct attorney-client relationship. Nevertheless, it may have become easier, at least in the estate planning context, in light of Paul v. Patton, 235 Cal. App. 4th 1088 (2015). The plaintiffs were assertedly intended beneficiaries of a trust amendment who alleged that attorney error caused them to lose a share of trust assets they otherwise would have received. In reversing the order initially sustaining a demurrer for lack of a sufficient duty allegation, the Paul court distinguished the case from well-established authority providing generally that no duty is owed to third parties unless they can allege they were expressly intended to benefit from the estate plan (and would have but for the alleged negligence) on the basis that the attorney in Paul admitted to a drafting error during the course of the resultant dispute.

In that narrow instance, according to Paul, where there is an admission that the plaintiffs were intended to benefit from the legal services performed, the attorney-defendant cannot later escape liability to the purported beneficiaries on grounds that no duty was owed (whether that seeming exception would discourage the drafting attorney of an estate plan from cooperating in disputes over it remains an open question).

Favorable Termination and Malicious Prosecution Liability

The quintessential third-party claim against an attorney is malicious prosecution, which continues to defy clarity as to how the courts evaluate the "favorable termination" element. In affirming the granting of an anti-SLAPP motion, the court in Pasternack v. McCullough, 235 Cal. App. 4th 1347 (2015), stressed that there can be no favorable termination unless the underlying action was fully adjudicated prior to the malicious prosecution action being filed. In Pasternack, underlying claims which were disposed of at the trial level were on appeal, and therefore not yet favorably terminated. In addition, further claims remained pending in the underlying action. Therefore, the Pasternack court held, the plaintiff could not show a favorable termination "of the entire proceeding," and could not establish a probability of prevailing.

The favorable termination element received shorter shrift, however, in Lanz v. Goldstone, 2015 DJDAR 13835 (2015), in which the court seemed to conflate favorable termination with the probable cause element before holding that the underlying case had been favorably terminated. This, even though two of the causes of action were dismissed on what some would characterize as procedural grounds (estoppel for failure to list the claims in a bankruptcy), rather than on the merits, generally a prerequisite to establishing favorable termination.

Though not central to its determination regarding favorable termination, the Lanz court indicated that the mere supposition that one could infer the underlying claims were not listed on the bankruptcy schedule due to their lack of merit was sufficient to turn an otherwise seemingly procedural dismissal into a favorable termination for purposes of malicious prosecution. In doing so, the court analogized to abandoned claims, such as those voluntarily dismissed or dismissed for failure to prosecute within the statutory period, in contrast to procedural dismissals, such as those based on the statute of limitations.

Conclusion

While the year 2015 started with relatively clear guidance with respect to the attorney-client privilege and its application to joint clients, it ended with some questions as to the nature of favorable termination in the context of a malicious prosecution action. Such is the nature of the continuing development of the law with respect to attorney defendants. What is certain is that, in the new year, not only will new questions affecting attorneys be answered, but new ones will also inevitably be raised.