Tuesday, June 24, 2003
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S.C. Applies ‘but for’ Test to Transactional Malpractice Claims
By KENNETH OFGANG, Staff Writer/Appellate Courts
The “case-within-a-case” approach to litigating attorney negligence claims applies when the alleged malpractice relates to transactional work, the California Supreme Court ruled yesterday.
“[W]e conclude that, just as in litigation malpractice actions, a plaintiff in a transactional malpractice action must show that but for the alleged malpractice, it is more likely than not that the plaintiff would have obtained a more favorable result,” Justice Joyce L. Kennard wrote for a unanimous court.
The decision overturns a ruling by this district’s Court of Appeal, which held that the founders of Dove Audio, Inc. were entitled to $8 million in damages based on a jury verdict in their suit against ex-Washington, D.C. attorney Charles A. Sweet and his former firm, Williams & Connolly.
Sweet is now a Honolulu-based partner in Carlsmith Ball LLP.
LACBA Backs Defendants
The Court of Appeal’s decision caused what the chairman of the Los Angeles County Bar Association’s Commercial Law and Bankruptcy Section described as “universally deep distress” in the legal community. LACBA joined with other local bar associations, malpractice insurers, law firms, and defense counsel groups in urging the high court to overturn the ruling.
The legal reform group HALT, or Help Abolish Lawyers’ Tyranny, filed an amicus brief in support of the plaintiffs, Michael Viner and his wife, actress Deborah Raffin.
The couple sued Sweet for negligence in handling their contract negotiations with Dove, which became NewStar Media before selling its assets in bankruptcy two years ago. The Viners founded Dove 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 seven claims and awarded more than $13 million in damages, which was cut by the Court of Appeal after it concluded that a portion of the suit had not been proven by substantial evidence.
Kennard, writing for the high court, said the “but for” test must be applied to transactional malpractice for the same reason it has been in effect “for more than 120 years...to safeguard against speculative and conjectural claims.”
The justice rejected the argument that it is too difficult to prove “but for” causation in the transactional context.
“In transactional malpractice cases, as in other cases, the plaintiff may use circumstantial evidence to satisfy his or her burden,” Kennard wrote. “An express concession by the other parties to the negotiation that they would have accepted other or additional terms is not necessary.”
Nor, she added, need the plaintiff “prove causation with absolute certainty.” As in any tort case, it is sufficient to prove that the defendant’s conduct is “more likely than not” to be cause of the plaintiff’s damages.
The high court returned the case to Div. Seven of the Court of Appeal. The attorneys who argued in the case disagreed as to what that panel is likely to do.
Attorneys’ Reactions
Mark Helm of Munger, Tolles & Olson, representing the defendants, said the Court of Appeal was likely to order that judgment be entered for his clients. The plaintiffs, he said, simply did not present sufficient evidence of causation to support a judgment in their favor.
The opinion, he added, stands for the proposition that tort damages are not supposed to make a client better off than the client would have been” had the attorney not committed malpractice.
But Patricia Glaser of Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, who argued for the Viners, said the justices had given transactional lawyers a type of protection that good attorneys—whom she said were “the vast majority”—do not need.
Glaser called the ruling “a victory for the bar associations and a defeat for the people.”
The Viners, however, should still be able to win damages in the case, she commented, saying the Court of Appeal should send it back to the Superior Court for retrial.
The case is Viner v. Sweet, 03 S.O.S. 3261.
Copyright 2003, Metropolitan News Company