Monday, October 1, 2001
C.A. Clarifies Proof Requirements for Transactional Malpractice
By KENNETH OFGANG, Staff Writer/Appellate Courts
The “case-within-a-case” approach to litigating attorney negligence claims doesn’t apply when the malpractice relates to transactional work rather than litigation, the Court of Appeal for this district ruled Friday.
When a client claims that counsel’s negligence resulted in an unfavorable verdict or forced an unfavorable settlement, Justice Earl Johnson Jr. explained for Div. Seven, the court must try both the negligence issues and the merits of the underlying claim.
This is so, the justice noted, because the plaintiff must prove not only that former counsel was negligent but that the plaintiff would have obtained a better result at trial if not for the malpractice.
But Johnson rejected the arguments of Washington, D.C. attorney Charles A. Sweet and his firm, Williams & Connolly, that the court must also try a “case-within-a-case” when the claim is that a lawyer was negligent in drafting a contract.
Sweet argued that Los Angeles Superior Court Judge David Workman should have required his former clients to prove that they could have gotten “a better deal” than the one he negotiated.
Michael Viner and his wife, actress Deborah Raffin, sued Sweet for negligence in handling their contract negotiations with Dove Audio, Inc.—now NewStar Media—which they founded in 1984. Dove—a pioneer in the production of audiobooks read by their authors or by celebrities, and later a book publisher as well—went public in 1994 and Raffin and Viner sold most of their stock in 1997.
That sale was a product of disagreements between the founders and Media Equities International, which had purchased $4 million worth of Dove stock a few months earlier. Viner and Raffin agreed to resign from Dove, with which they both held lucrative employment contracts, and transfer most of their stock in exchange for $1.5 million, payable over five years.
After arbitration concerning the terms of the agreement, Viner and Raffin—who now own a motion-picture, television, and music production company—sued Sweet and his firm.
They claimed the attorneys were negligent in:
•Failing to secure the clients’ rights to solicit Dove authors for non-audio-book projects;
•Not objecting to an arguably invalid non-competition clause;
•Failing to include a provision requiring payment of attorney fees to the prevailing party in arbitration proceedings;
•Failing to secure “producer” credit for Raffin on audiobooks initiated during her employment;
•Allowing payment of stock dividends to fall within the terms of a general release;
•Failing to negotiate an indemnification for liabilities the couple might incur as a result of their former employment; and
•Advising them to accept a new class of stock as security for the monthly payments, when they would have been better off as unsecured creditors.
Jurors agreed as to all six claims and awarded more than $13 million in damages. Workman denied the defendants’ motions for a new trial and judgment notwithstanding the verdict, rejecting the argument that he should have instructed the jury on “but for” causation.
The Court of Appeal Friday agreed with the judge on the evidentiary and instructional issues, but concluded in an unpublished portion of the opinion that a portion of the suit had not been proven by substantial evidence. The panel reduced the damages to $8 million but otherwise affirmed.
Johnson Friday rejected the defendants’ “negotiation within a trial” argument, saying it was “akin to requiring the plaintiff in a breach of contract action to prove not only the defendant’s breach of a contract term but that someone else would have agreed to and properly performed that term—in order to show the defendant’s breach actually caused the plaintiff’s damages.”
Proving what would have occurred if counsel had insisted that a certain term be included in, or excluded from, a contract, is a “highly speculative venture,” while reconstruction of an event in the litigation context “is a rather straightforward enterprise,” Johnson wrote.
If Williams & Connolly’s approach were utilized, the justice reasoned, the jury would have had to go through all sorts of hypothetical scenarios as to what terms each party would or would not have asked to be included, based upon the other party’s acceptance or rejection of other terms, and whether either party would have walked away from the deal if the other hadn’t accepted a particular term.
“In the context of litigation malpractice the ‘trial within a trial’ approach is designed to substitute objective evidence for ‘pure speculation and conjecture,’ ” Johnson wrote. “In the context of the sort of transactional malpractice involved in this case, that approach does the opposite: it would introduce unprecedented layers of pure speculation and conjecture into the trial of the malpractice action.”
Attorneys on the appeal were Dennis C. Brown, Mark B. Helm, Allison B. Stein, and Steven W. Hawkins of Munger, Tolles & Olson and Charles F. Kester of Kester & Isenberg for the defendants and Patricia L. Glaser and Peter C. Sheridan of Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro for the plaintiffs.
The case is Viner v. Sweet, 01 S.O.S. 4822.
Copyright 2001, Metropolitan News Company