Friday, April 9, 2010
Court Rules Malpractice Action Is Not Barred by Judicial Estoppel
By SHERRI M. OKAMOTO, Staff Writer
The Third District Court of Appeal has revived a malpractice case against a Sacramento law firm, ruling that the action was not barred by the doctrine of judicial estoppel.
Although the plaintiffs took positions in their malpractice claim which were inconsistent with allegations they made in a prior lawsuit seeking rescission of the settlement which attorneys Malcolm S. Segal and James R. Kirby, and their firm, Segal & Kirby, had brokered on their behalf, the panel explained in its Wednesday decision that the requirements for judicial estoppel were not met, since the plaintiffs’ position in the rescission action had not been adopted by the trial court hearing that dispute.
The Swahn Group, Roger Swahn and Pamela Swahn retained Segal and Kirby to represent them in an action against Gary Tharaldson and his various business enterprises for breach of a 1996 contract to develop 20 hotels.
After the parties reached a settlement through mediation, the Swahns changed attorneys and sought to rescind, contending that there was a mutual mistake of fact and fraud in the inducement of the agreement.
Pursuant to the terms of the settlement agreement, the parties returned to the mediator and the dispute was settled for a payment to the Swahns of approximately $6 million.
The Swahns also filed suit against Segal & Kirby, asserting their former counsel had been negligent in advising arbitration and settlement of the breach of contract action against Tharaldson, but Sacramento Superior Court Judge Michael G. Virga sustained the firm’s demurrer to the complaint.
Virga ruled that the Swahns could not claim their attorneys were “both fraudulently deceived, and negligent in advising the Swahns to settle.” Taking these positions, he found, was “inconsistent” and “irreconcilable.”
Writing for the appellate court, Justice Coleman Blease disagreed. While he acknowledged that the Swahns made inconsistent factual allegations in the two actions, the justice posited that this was irrelevant, since no tribunal had adopted the Swahns’ earlier asserted position.
For judicial estoppel to apply, he explained, the same party must take two inconsistent positions in judicial or quasi-judicial administrative positions and be successful in asserting the first position as true.
Pursuant to Jogani v. Jogani (2006) 141 Cal.App.4th 158, and Gottlieb v. Kest (2006) 141 Cal.App.4th 110, Blease added the success requirement is not met where there is no prior judicial acceptance of the party’s position.
Blease noted some case law holding that “there need not be a judicial element to judicial estoppel,” but he reasoned that this case did not present the kinds of “extreme circumstances” or “egregious misconduct” undertaken by the parties in those cases to manipulate the legal system.
He further questioned the validity of this line of precedent, positing that he did not understand “in what sense judicial estoppel applies if the judicial is taken out of the equation.”
The justice also rejected the Swahns’ contention that the appellate court could not affirm a finding of judicial estoppel at the pleading stage, concluding that the application of judicial estoppel tenders a question of fact only if a determination of fact is necessary to make a ruling on the claim. However, if the facts material to a determination of judicial estoppel are undisputed, a question of law is presented, and an appellate court may consider the issue of judicial estoppel if such facts indicate the doctrine should be applied on demurrer, he said.
Justices George Nicholson and Tani Cantil Sakauye joined Blease in his decision.
The case is The Swahn Group, Inc. v. Segal, 10 S.O.S. 1870.
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