Thursday, July 26, 2001
Court of Appeals Rules:
Accountant May Sue Lawyer for Indemnity Over Dual Malpractice
By ROBERT GREENE, Staff Writer
This district’s Court of Appeal yesterday cleared the way for an accounting firm, sued for malpractice, to seek indemnity from a law firm that represented the same client.
The ruling is a departure from a long line of cases articulating a public policy that third parties may not pursue equitable indemnity and negligence claims against attorneys.
Writing for a divided Div. Seven, Justice Earl Johnson Jr. distinguished the malpractice action against lawyers and accountants brought by the wife of well-known television writer and director Don Bellisario.
Unlike cases in which one lawyer in a malpractice action seeks indemnity against a successor lawyer retained by the same client, Johnson said, the case of plaintiff Deborah Pratt dealt with two professional defendants sued simultaneously and did not call into question the law firm’s duty of undivided loyalty to Pratt.
“First, the indemnity plaintiff and indemnity defendant were involved in joint representation—not successive representation—of the client,” Johnson said. “That representation occurred at the same time in the same case. Second, neither the lawyer nor the accountant was still representing the client at the time of the indemnity action, so there could be no impairment of either’s ongoing loyalty to the client. Third, the client tried to sue both for their joint malpractice, and could have maintained such an action but for the shorter statute of limitations for attorney malpractice.”
No New Conflicts
If the client had been able to maintain the suit against both the law firm and the accountants, whatever conflicts there may have been between them would have been present “to an equal degree,” Johnson said, so no new conflict issues were presented.
The case stems from Pratt’s filing for divorce in 1991 from Bellisario, creator of “Magnum P.I.,” “Airwolf” and “Quantum Leap.”
Pratt retained the Century City law firm of Wasser, Rosenson & Carter as her counsel. The accounting firm of Gursey, Schneider & Co. was retained for forensic accounting to determine the holdings of Bellisario.
The law firm negotiated a settlement, which Pratt signed in 1994, and the Wasser firm then withdrew as counsel.
Assets Not Disclosed
Pratt later learned that her ex-husband had not disclosed all of his assets, including fees from “Quantum Leap.” She moved to set aside the judgment of dissolution due to fraud, but the Los Angeles Superior Court judge said her remedy was a malpractice action against her lawyers and accountants.
She sued the lawyers but retired Los Angeles Superior Court Judge Jerry K. Fields, in arbitration, ruled that the statute of limitations had expired.
Pratt also sued the accountants for failing to discover the hidden assets, and was awarded $2.47 million. The accountants then sued the lawyers, seeking equitable indemnity. The law firm demurred, citing the cases that hold public policy bars equitable indemnity claims against attorneys by non-clients.
Los Angeles Superior Court Judge Ernest Hiroshige sustained the demurrer without leave to amend.
Johnson, joined by Los Angeles Superior Court Judge Paul Boland, sitting on assignment, disagreed.
The justice acknowledged that there is a real conflict in many cases.
“In filing suit—and litigating and potentially settling the legal malpractice case—against Law Firm I, Law Firm II must be mindful it may be compelled to contribute some of its own money to the verdict or settlement being sought on behalf of an existing client,” he said. “In such a case, there indisputably is an actual and existing conflict because the more Law Firm II wins for the client, the greater the firm’s own potential exposure in the indemnity action. Moreover, in many cases Law Firm I may be using the indemnity suit as a tactic to disqualify Law Firm II from prosecuting the malpractice case against Law Firm I, thereby denying the client his or her counsel of choice in the malpractice action.”
Law Firm II could not defend the indemnity lawsuit without divulging privileged client communications or obtaining an express waiver from the client, he noted. Since Law Firm II is representing the client in the malpractice case against Law Firm I, the indemnity suit might also open up communications between the client and Law Firm II related to the pursuit of the malpractice action, which Law Firm II could not reveal without obtaining an express waiver from the client.
“This is a dilemma Law Firm II and the client should not be forced to confront,” Johnson said. “In such a situation, the indemnity lawsuit is barred, based in part on the important public policy of preserving attorney-client confidences.”
But he said the policy of protecting attorney-client confidentiality is not implicated in Pratt’s case.
“Here the client, Pratt, employed Gursey and Wasser to work together on the same case,” he said. “This was not successive but concurrent representation in the same matter. The confidential communications the client made to her representatives during that single litigation were so interrelated the client’s waiver as to one constitutes a waiver as to both.”
Justice Fred Woods disagreed. In dissent, he wrote that the possibility of a less-than-total devotion to the client exists if courts allow the prospect of personal exposure to suit by the client’s other advisors.
The case is Gursey, Schneider & Co. v. Wasser, Rosenson & Carter, B142728.
Copyright 2001, Metropolitan News Company