Facts

In 1989, plaintiffs Dennis Wise and his wife, Joan Wise, both small business owners, were approached by their accountant, William P. Cheng, with whom they worked since 1979, with a request to borrow money to fund some of his business interests. Plaintiffs loaned the accountant $350,000 in two separate promissory notes. Plaintiffs claimed the accountant was supposed to pay back plaintiffs within a year and when he did not pay either of the promissory notes back, interest was added each year.

Subsequently, the amount grew to over $605,000, including interest and attorney fees. The accountant then went through a bankruptcy proceeding through which DLA Piper LLP (US) obtained an agreement for Cheng to pay back the money outside of bankruptcy. When Cheng failed to make payments on the agreement, a stipulated judgment was entered in San Diego Superior Court.

On Aug. 1, 1994, plaintiffs received an original judgment of $605,185. Attorney Michael Breslauer, then with DLA Piper's predecessor firm, filed and recorded the judgment, and took a debtor's examination of Cheng, who at the time had no money with which to satisfy the judgment. Breslauer left the firm in 1995, and plaintiffs were never told that neither he nor anyone else at the DLA Piper firm would be responsible for their debt collection matter.

Plaintiffs claimed that they were not told that a judgment had to be renewed within 10 years or would become void. DLA Piper's predecessor firm did not calendar the renewal date, nor did they communicate to plaintiffs that the date had come and gone without having been renewed. While the stipulated judgment contained a waiver of the statute of limitations by the debtor until the judgment was paid, the Court ruled that such waiver was only effective for four years after the statute would otherwise have passed. (CCP 360.5) In 2009, plaintiffs contacted DLA Piper after having become aware of some business activity by Cheng, who might then have been able to satisfy the judgment.

Plaintiffs sued Breslauer and DLA Piper for professional negligence and breach of fiduciary duty.

Breslauer was later dismissed from the case with an agreement by DLA Piper to be held responsible for any negligence on his part.

Plaintiffs claimed that DLA Piper mishandled the file by closing it, failing to renew the judgment and not notifying either plaintiff of the requirement to renew the judgment. Plaintiffs claimed the judgment was collectible in some amount and that it could have been paid had it not been void due to DLA Piper's negligence.

DLA Piper admitted they were negligent, but defended on basis of lack of continuous representation. Defense also claimed that regardless of any negligence on its part, the judgment was valueless and not collectible, as the accountant was a disreputable businessman.

Defense's expert opined that it was impossible to collect from the accountant, as he had no assets.

Plaintiffs responded that the accountant had received investments of over $2 million and admitted to receiving $25,000 per month from wealthy investors between 2004 and 2008. Testimony from four investors confirmed that at least $1.5 million had been invested with Cheng over that time period, and knew that the money was going to fund Cheng's frequent travel to China looking for business prospects.

Plaintiffs' expert opined that it was reasonably probable for plaintiffs to have collected on the judgment based on Cheng's lifestyle, including a very expensive rental home in La Jolla, 40 trips to China between 2006 and 2012, and the investors' testimony.

PLAINTIFFS' CONTENTIONS:
Plaintiffs contended that defendant continued to represent plaintiffs until at least August 2009. The judgment debtor, William P. Cheng, could have satisfied in the past or in the future at least the amount of the judgment in the underlying case ($605,185) or as much as $1 million had it been timely renewed.

DEFENDANT'S CONTENTIONS:
Defendant admitted it was negligent in failing to renew the judgment in the underlying case and in failing to advise plaintiffs to renew it. Defendant contended that its representation of plaintiffs terminated in 1998 (no continuous representation, statute of limitations expired) and that the judgment in the underlying case was uncollectible.

Settlement Discussions

Plaintiffs made a CCP 998 demand of $599,999.99, reduced to $500,000 at beginning of trial. Defendant made a CCP 998 offer of $110,000, increased to $200,000 at beginning of trial.

Damages

Loss of judgment due to failure to renew: $605,185.

Result

Plaintiffs' verdict of $605,185 (the amount of the judgment in the underlying case that defendants failed to renew on plaintiffs' behalf in 2004).

Other Information

Attorneys fees requested by plaintiff per underlying stipulated judgment. FILING DATE: April 23, 2010.

Deliberation

3.5 hours

Length

10 days