Sabadia et al. v. Holland & Knight LLP

2nd District Court of Appeal

Justice Nora M. Manella

Appellant's Lawyers: Daniel M. Kolkey, Kevin S. Rosen, Bradley J. Hamburger, Andrew T. Brown, Gibson, Dunn & Crutcher LLP; David M. Alexrad, Frederic D. Cohen, Horvitz & Levy LLP; John D. Klinedinst, Carey L. Cooper, Klinedinst PC

Appellee's Lawyers: David Z. Ribakoff, Ribakoff Law Firm; Michelle J. Correll, Correll Law APC; Bruce Adelstein, Encino

The 2nd District Court of Appeal reversed a $34.5 million verdict against Holland & Knight LLP in April for alleged legal malpractice in connection with a series of 10 real estate transactions.

A Los Angeles County Superior Court jury found that a Holland & Knight LLP attorney committed misconduct by concealing a third party's misappropriation of funds tied to the real estate projects.

But the 2nd District's unanimous opinion concluded there was no evidence Holland & Knight "knew, or reasonably should have known" that the third party who retained the firm was likely to be engaged in the misappropriations. Sabadia v. Holland & Knight LLP, B242773 (Cal. App. 2nd Dist., filed July 20, 2012).

A Gibson, Dunn & Crutcher LLP legal team led by Daniel M. Kolkey represented Holland & Knight in its successful appeal, joining the case after the initial appellate briefs were filed and before oral argument.

Though the appeals court's 120-page opinion was not certified for publication, Kolkey said it provides a clear road map of how causation has to be established in complicated legal malpractice cases.

"The court found the plaintiffs not only had to present evidence of actual damages resulting from the law firm's actions, but also that those damages had to be foreseeable," said Kolkey, a San Francisco partner.

"It is yet another affirmation by a California Court of Appeal that causation is a critical component of any legal malpractice claim," added Los Angeles-based partner Kevin S. Rosen, chairman of Gibson Dunn's law firm defense practice group.

Gibson Dunn partner Bradley J. Hamburger and former associate Andrew T. Brown worked with Kolkey and Rosen on the case.

Horvitz & Levy LLP partners David M. Axelrad and Frederic D. Cohen assisted with the earlier stages of the appeal, as did Klinedinst PC CEO John D. Klinedinst and Klinedinst shareholder Carey L. Cooper.

Kolkey, a former 3rd District Court of Appeal justice, said one key to victory was ensuring the appeals court justices could easily follow the complicated set of facts at the center of the case. So Gibson Dunn took the unusual step of requesting the justices have with them at oral argument charts with information about the 10 real estate investments, a request the court granted.

Kolkey said a close review of the plaintiffs' briefs also paid dividends, as one case they cited contained the "reasonable certainty" standard outlining when a plaintiff can recover damages for an unpaid liability to a third party. Green Wood Industrial Company v. Forceman International Development Group Inc. (2007) 156 Cal.App.4th 766, 776.

The standard was relevant because of loan guarantees at issue in the case, so Kolkey cited it at oral argument and in a subsequent supplemental brief. The appeals court referenced the standard and Green Wood in its ruling for Holland & Knight.

"In essence, the plaintiffs had raised a gold mine in their brief," Kolkey said.

Lawyer Bruce Adelstein of Encino represented the plaintiffs on appeal. He referred a request for comment to David Z. Ribakoff, the trial lawyer, who also declined to comment.

A petition for state Supreme Court review of the 2nd District's opinion was denied. The case was remanded to Los Angeles County Superior Court for further proceedings.

Based on the appeals court's opinion, the damages that could have been recovered at trial were reduced to approximately $1 million.

The case settled last October on confidential terms, Rosen said.

-- Lyle Moran