Thursday, January 17, 2013
Court of Appeal Rules:
Lawyer Properly Substituted for Defunct Firm as Judgment Debtor
By JACKIE FUCHS, Staff Writer
A lawyer who agreed, on behalf of his dissolved law corporation, to a settlement under which the firm could become obligated to reimburse its malpractice carrier for claims was properly substituted for the corporation as a judgment debtor, this district’s Court of Appeal has held.
In a decision published yesterday, Div. Seven said there was substantial evidence that attorney Leonard M. Ross actively participated in coverage litigation against Carolina Casualty Insurance Co., knowing that his former firm was a dissolved, inactive entity with no funds and would be unable to satisfy judgment as contemplated by the settlement of the malpractice claims.
The case arose in connection with a Lawyers’ Professional Liability Policy Carolina Casualty issued to L.M. Ross Law Group, LLP, for the policy period September 24, 2004 to September 24, 2005. Four days before the coverage period expired, Ross Law notified the insurer of a potential legal malpractice claim by its client, Diversified Entertainment Co.
Reservation of Rights
DEC did eventually file suit against Ross Law in December 2007, and Caroline Casualty agreed to defend the firm under a reservation of rights. In May 2008, before the DEC claim was resolved, the insurer filed a coverage action against Ross Law, alleging that under the terms of the policy, it was not required to cover the claim because DEC and its predecessor-in-interest, DMI Entertainment Co., were owned and managed or controlled by Ross, who also owned and managed Ross Law Group.
A month later, with the coverage issue still unresolved, the parties settled DEC’s claims for $250,000, with Carolina Casualty paying $175,000 and Ross Law paying $75,000. Under the settlement agreement, Carolina Casualty and Ross Law each reserved the right to seek reimbursement from the other of the amount it had paid to DEC.
In the coverage hearing, Los Angeles Superior Court Judge Michelle R. Rosenblatt found that Ross had acted simultaneously as DEC’s lawyer and owner/manager at the time the malpractice had allegedly occurred. She entered judgment in favor of Carolina Casualty, which the Court of Appeal subsequently affirmed.
Ross Law refused to satisfy the judgment, however, asserting that it had ceased operations in September 2006, nearly two years before it entered into the settlement agreement, and that it had no assets.
Carolina Casualty then moved to amend the judgment to include Ross, the Leonard M. Ross Revocable Trust and the L.M. Ross Professional Law Corporation as the correct names of the real defendants and real parties in interest. Before the court could rule on the motion, Ross filed a voluntary petition for relief under title 11 of the bankruptcy code.
After the stay on proceedings was lifted, Rosenblatt denied the request to add the trust and L.M. Ross Professional Law Corporation to the judgment, but granted the addition of Ross. She said that such relief was “equitably justified” in light of her finding that Ross, as an individual, had actively participated in and controlled the litigation between Carolina Casualty and Ross Law Group and permitted it to go forward against a non-entity with no funds.
On appeal by the bankruptcy trustee, a unanimous panel held that Rosenblatt did not abuse her discretion in amending the judgment to include Ross as an individual because there was substantial evidence that the law firm had been dissolved, and that Ross had continued to act on behalf of Ross Law Group anyway. Among the actions cited by Rosenblatt was Ross’ agreement, on behalf of the firm, to pay Carolina Casualty $175,000 if the insurer prevailed on its coverage defenses, when he knew that it was impossible for the defunct firm to do so.
The panel also did not accept the trustee’s assertion that Ross was simply acting as the authorized representative of Ross Law Group and that it was Ross Law Group itself, rather than Ross, that controlled the litigation.
Presiding Justice Dennis Purluss, writing for the panel, said that while such a distinction might be appropriate under other circumstances, it was “totally illusory” where Ross Law Group had dissolved and ceased operations well prior to the events at issue and Ross was, at all material times, the only equity partner in the purported limited liability partnership.
Justices Laurie Zelon and Fred Woods concurred in the opinion.
Dean G. Rallis Jr. and Daniel A. Lev of Sulmeyerkupetz represented Ross, who also represented himself.
Chad B. Wootton represented Carolina Casualty.
The case is Carolina Casualty Insurance Co v. L.M. Ross Law Group, LLP, 1 S.O.S. 212.
Copyright 2013, Metropolitan News Company