Nelson v. Anderson

NANCY NELSON, Plaintiff and Respondent, v. LONI ANDERSON, et al., Defendants and Appellants. No. B107992 (Super. Ct. No. BC134935) California Court of Appeal Second Appellate District Division Seven Filed June 14, 1999
ORDER DENYING PETITION FOR REHEARING AND MODIFYING OPINION (NO CHANGE IN JUDGMENT)
THE COURT* :

        IT IS ORDERED that the petition for rehearing filed June 1, 1999, is denied, and that the opinion filed herein on May 17, 1999, be modified, as hereinafter set forth. This modification does not effect a change in the judgment. The opinion is modified in following particulars:

1.        Part II-B, beginning at page 23 and ending at mid-page on page 271, is deleted;

2.        The following shall be inserted as part II-B and footnotes will require correct numbering:

C.        MPG has not carried its burden to show reversible error in the trial court's disallowance of costs claimed pursuant to Code of Civil Procedure section 998.
        
        Based upon the same facts upon which Nelson based her allegations of breach of Anderson's fiduciary duties, Nelson sought damages against MPG for intentional and negligent interference with prospective economic advantage and attorney malpractice. Prior to trial, MPG served Nelson with an offer of compromise pursuant to Code of Civil Procedure section 998. MPG offered to pay Nelson the sum of $5000, each party to bear its own costs and attorneys fees, in exchange for a dismissal and general release. Nelson did not accept the offer, and it expired.
        After Nelson presented her evidence, the trial court granted MPG's motion for nonsuit as to the intentional and negligent interference claims. The jury found by special verdict that no attorney-client relationship existed between MPG and Nelson, and judgment was entered for MPG. The trial court taxed all costs claimed by MPG pursuant to Code of Civil Procedure section 998, on the ground that the offer was a "token" offer, which was not reasonable or made in a good-faith effort to settle.
        A prevailing party who has made a valid pretrial offer pursuant to Code of Civil Procedure section 998 is eligible for specified costs, so long as the offer was reasonable and made in good faith. (Elrod v. Oregon Cummins Diesel, Inc. (1987) 195 Cal.App.3d 692, 698-699.) Whether a section 998 offer was reasonable and made in good faith is left to the sound discretion of the trial court. (Id., at p. 700.) Because MPG prevailed in the action, its 998 offer is presumed to have been reasonable, and it was Nelson's burden to show otherwise. (See Santantonio v. Westinghouse Broadcasting Co., supra, 25 Cal.App.4th at p.117) However, on appeal, MPG has the burden of establishing an abuse of discretion. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 331.)
        Even a modest or "token" offer may be reasonable if an action is completely lacking in merit. (Culbertson v. R.D. Werner Co., Inc. (1987) 190 Cal.App.3d 704, 709-710.) MPG contends that its offer of $5000 and a waiver of costs was reasonable, because Nelson failed to show that her action had merit; and further, that the action did not have merit, because Nelson presented no evidence of an attorney-client relationship, and even admitted that MPG was the corporation's counsel, not hers individually.
        We do not agree that the lack of evidence of an attorney-client relationship is dispositive as to whether Nelson's action against MPG had merit. An action for professional negligence does not necessarily require an attorney-client relationship. (Meighan v. Shore (1995) 34 Cal.App.4th 1025, 1041.) Determining whether an attorney owed a duty to a non-client is a matter of policy and involves the balancing of various factors. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 343, citing Biakanja v. Irving (1958) 49 Cal.2d 647, 650.) ¹
        However, it does not appear that the court or the parties considered MPG's potential liability in any context other than an attorney-client relationship, or that Nelson ever intended or attempted to establish a duty by balancing policy factors. The trial court relied upon Johnson v. Superior Court (1995) 38 Cal.App.4th 463, in which it was held that an attorney for a limited partnership can be found to represent a limited partner, if there is evidence that the parties entered into such a relationship. (38 Cal.App.4th at p. 470.) The trial court held by analogy to Johnson, that an attorney-client relationship can exist between a shareholder and the corporation's attorney, and therefore, liability was an "unsettled" issue.
        Whether or not an attorney may be found to have agreed to represent a shareholder of his corporate client, there clearly was no such relationship here. Nelson never alleged facts amounting to the formation of an attorney-client relationship, andat trial, Nelson presented no evidence of an attorney-client relationship with MPG. Nelson testified that she understood that MPG represented the corporation and not her individually. Just prior to the formation of the corporation, MPG obtained Nelson's signature on a letter disclosing that it would be representing the corporation, not either of its shareholders, and suggesting that she obtain independent counsel. MPG partner Mark Grushkin testified that he dealt with Nelson only as an employee of the corporation.
        We therefore agree with MPG's contention that Nelson's action had no merit, and we disagree with the trial court's assessment, made after trial, that liability was a close issue. That does not necessarily mean, however, that the 998 offer was reasonable. "'As a general rule, the reasonableness of a defendant's offer is measured, first, by determining whether the offer represents a reasonable prediction of the amount of money, if any, defendant would have to pay plaintiff following a trial, discounted by an appropriate factor for receipt of money by plaintiff before trial, all premised upon information that was known or reasonably should have been known to the defendant. It goes without saying that a defendant is not expected to predict the exact amount of his exposure. If an experienced attorney or judge, standing in defendant's shoes, would place the prediction within a range of reasonably possible results, the prediction is reasonable . . . .
        "If the offer is found reasonable by the first test, it must then satisfy a second test: whether defendant's information was known or reasonably should have been known to plaintiff. This second test is necessary because the section 998 mechanism works only where the offeree has reason to know the offer is a reasonable one. If the offeree has no reason to know the offer is reasonable, then the offeree cannot be expected to accept the offer.'" (Colbaugh v. Hartline (1994) 29 Cal.App.4th 1516, 1528, citing Elrod v. Oregon Cummins Diesel, Inc., supra, 195 Cal.App.3d at p. 699.)
        We agree with MPG that, under the first test, a $5000 offer was within the range Nelson could expect to recover, because, without the pleading of any duty, or any proof of the duty she purported to plead, she could not expect to recover anything, and the trial court erred in finding otherwise. However, MPG bears the burden on appeal to show the trial court erred as to the the second part of the test of a reasonable offer, as well. "The burden is on the party complaining to establish an abuse of discretion, and unless a clear case of abuse is shown and unless there has been a miscarriage of justice a reviewing court will not substitute its opinion and thereby divest the trial court of its discretionary power.' [Citations.]" (Denham v. Superior Court (1970) 2 Cal.3d 557, 566.)"'A judgment or order of the lower court is presumed correct. All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown. This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error.' [Citations.]" (Denham v. Superior Court, id., 2 Cal.3d at p. 564.)
        MPG has not shown what Nelson knew or should have known regarding her likelihood of recovering damages. The record comes before us in the form of appellant's and respondent's appendices, which do not contain much of the pretrial record. ² We cannot tell from this record whether MPG demurred to any of Nelson's complaints, or brought a motion for judgment on the pleadings or a motion for summary judgment, or whether the weaknesses of Nelson's case were brought to her attention in some other way. ³ (See Elrod v. Oregon Cummins Diesel, Inc., supra, 195 Cal.App.3d at p. 699.) It was MPG's burden, as the appellant, to provide a record sufficient to determine whether the result would have been different in the absence of error, and since it did not do so, the trial court's discretion cannot be disturbed. (See Jones v. Dumrichob (1998) 63 Cal.App.4th 1258, 1264.)


1        See Daily Appellate Report of May 19, 1999, page 4610, column 2, heading B., line 1 thru page 4611, column 2, heading c.


*         LILLIE, P.J. JOHNSON, J., WOODS, J.
¹          Among the factors considered are "'the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, and the policy of preventing future harm.'" (Ibid.)
²          Nor has MPG chosen to include its motion for nonsuit or its motion for directed verdict in its appendix. MPG asserts at page 8 of its brief, that the court erroneously allowed the malpractice claim to go to the jury, but does not reveal how the decision was made.

³          We enumerate only examples of evidence of notice to the offeree. We do not hold that an offer is unreasonable unless the offeree understands the legal effect of any information relevant to the reasonableness of the offer; nor do we hold that an offeror has a duty to advise the offeree of the legal effect of any such information.