Arden v. Silas (In re Arden)
| Decision Date | 02 July 2015 |
| Docket Number | BAP Nos. CC-14-1186-DTaKu,Adv. No. 13-01164-VK |
| Parties | In re: JAMES ELLIS ARDEN, Debtor. JAMES ELLIS ARDEN, Appellant, v. MARTINA A. SILAS, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
NOT FOR PUBLICATION
Argued and Submitted on June 18, 2015 at Pasadena, California
Appeal from the United States Bankruptcy Court for the Central District of California
Appearances: Appellant James Ellis Arden and appellee Martina A. Silas argued pro se.
Before: DUNN, TAYLOR and KURTZ, Bankruptcy Judges.
Prepetition, Martina Silas obtained a state court judgment against the debtor, James Arden, for malicious prosecution. One month after the debtor filed his chapter 7 bankruptcy petition, Ms. Silas initiated an adversary proceeding to except the state court judgment from discharge under § 523(a)(6). The debtor moved to dismiss the adversary proceeding under Civil Rule 12(b)(6).2 Before responding to the motion to dismiss, Ms. Silas moved for summary judgment on her complaint ("summary judgment motion"). The bankruptcy court granted summary judgment in Ms. Silas's favor, giving issue preclusive effect to the state court judgment. It also denied the debtor's motion to dismiss.
The debtor appeals the bankruptcy court's orders granting Ms. Silas's summary judgment motion and denying his motion to dismiss.3 We AFFIRM the bankruptcy court's denial of the debtor's motion to dismiss, but VACATE and REMAND the bankruptcy court's summary judgment decision for further proceedings consistent with this memorandum decision.
Both Ms. Silas and the debtor are attorneys. Fifteen years ago, Ms. Silas represented Ross Gunnell in a personal injury action against his former employer, Metrocolor Laboratories, Inc. ("Metrocolor"), and others for injuries allegedly sustained from exposure to a hazardous chemical substance Metrocolor required Mr. Gunnell to use to clean its film processing laboratories. Although Ms. Silas alleged several causes of action on Mr. Gunnell's behalf, including battery, intentional infliction of emotional distress and fraud, only the battery cause of action was presented to the jury at trial.5 Also, only Metrocolor remained as a defendant in the personal injury action at trial, as Ms. Silas had settled with the other defendants.
When conducting her legal research and factual investigations for the personal injury action, Ms. Silas knew that the California Workers' Compensation Act ("WCA") generally provided the exclusive remedy for employees who have sustained work-related injuries. That is, the WCA prohibited employeesfrom bringing civil actions for damages against their employers unless certain statutory exceptions applied. See Cal. Labor Code §§ 3600, 3602.
She also knew that there were statutory exceptions to exclusive application of the WCA, including the exception for fraudulent concealment under Cal. Labor Code § 3602(b)(2). This exception allowed an employee to bring a civil action against his employer where the employee's injury was aggravated by the employer's fraudulent concealment of the injury's existence and its connection with the employee's employment. Ms. Silas knew that the fraudulent concealment exception did not apply where the employer first learned of the injury from the employee.
Based on her discussions with Mr. Gunnell, Ms. Silas did not believe that his personal injury action fell within the fraudulent concealment exception. She nonetheless asserted it out of an abundance of caution.
Later, during pretrial discovery, Ms. Silas came across a medical insurance form showing that Mr. Gunnell had sought medical care for his hands a few days after he began working for Metrocolor and that he had blamed the cleaning solution for his hands' condition. Consequently, she abandoned her argument concerning the fraudulent concealment exception.
At trial, the jury returned a substantial verdict in Mr. Gunnell's favor. However, on Metrocolor's motion for judgment notwithstanding the verdict, the trial court overturned the verdict. It determined that the WCA's exclusive remedy provision barred Mr. Gunnell's personal injury action against Metrocolor, especially in light of Johns-Manville Prods. Corp. v.Superior Court, 27 Cal. 3d 465 (1980), a California supreme court decision. (Johns-Manville held that the WCA provided the exclusive remedy for toxic exposure injuries in the workplace.) The trial court further determined that Mr. Gunnell's battery cause of action did not fall within the fraudulent concealment exception.
The appellate court affirmed the trial court's decision on substantially the same grounds as set forth by the trial court in its decision. See Gunnell v. Metrocolor Labs., Inc., 92 Cal. App. 4th 710 (2001).
Seven years later, acting pro se, Mr. Gunnell initiated a legal malpractice action against Ms. Silas. See Gunnell v. Silas, 2006 WL 204610 (2006); Gunnell v. Silas, 2009 WL 5158842 (2009). He alleged that Ms. Silas erroneously had abandoned argument on the fraudulent concealment exception and had misappropriated settlement funds. The debtor later substituted in as counsel for Mr. Gunnell.
Moving for summary judgment, Ms. Silas argued that she did not commit legal malpractice by abandoning the fraudulent concealment exception argument because it did not apply as a matter of law. Ms. Silas also argued that she did not misappropriate settlement funds because: 1) Mr. Gunnell had agreed to apply any settlement funds due him to the costs of the personal injury action; and 2) he had signed the settlement documents in her presence before a notary public and had signedthe back of the settlement check, endorsing it over to her.6
The trial court agreed with Ms. Silas, granting summary judgment in her favor. The appellate court affirmed the trial court's decision.
Ms. Silas then filed a complaint against the debtor for malicious prosecution of the legal malpractice action. As part of her malicious prosecution cause of action, she asserted that the debtor lacked probable cause in prosecuting the legal malpractice action and that he prosecuted it with malice.
Specifically, Ms. Silas contended that the debtor continued to prosecute Mr. Gunnell's claim for misappropriation of settlement funds even though the debtor was shown copies of the signed and notarized settlement agreement and the endorsed settlement check.
Ms. Silas moreover argued that she did not erroneously abandon the fraudulent concealment exception argument because she determined that it did not apply based on the facts of Mr. Gunnell's personal injury action and prevailing California case law. She presented portions of Mr. Gunnell's depositions and trial testimony regarding his statements as to his knowledge of his injuries over the years. She also pointed out that the debtor had represented Mr. Gunnell at the depositions and in thelegal malpractice action.
At trial in the malicious prosecution action, the debtor opined that he would be committing malpractice if he conceded that Mr. Gunnell's case lacked merit. He believed that he had to proceed with it, otherwise he would have breached his duty to his client, Mr. Gunnell.
The debtor testified that he based the legal malpractice action on his contention that Ms. Silas should not have abandoned the argument on the fraudulent concealment exception. He believed that Johns-Manville was not controlling law as to the application of the fraudulent concealment exception in Mr. Gunnell's personal injury action. He admitted that he did not read all of Mr. Gunnell's testimony in the personal injury action.
Despite Ms. Silas' repeated requests that he withdraw the claim for misappropriation of settlement funds, the debtor refused to do so. He continued to press forward with Mr. Gunnell's claim for misappropriation of settlement funds because: 1) he believed that Ms. Silas did not disburse the settlement funds pursuant to her fee agreement with Mr. Gunnell; and 2) he believed that the settlement documents were not properly authenticated as they did not indicate that the notary public witnessed Mr. Gunnell signing them. However, the debtor disclosed that he did not investigate Mr. Gunnell's allegations regarding Ms. Silas' alleged misappropriation of settlement funds because he was focusing on his contention concerning her abandonment of the fraudulent concealment exception argument. He further admitted that he recognized Mr. Gunnell's signatures onthe settlement documents and the settlement check.
The debtor denied harboring any malice towards Ms. Silas. He claimed that he did not harass her in any fashion as she had counsel representing her.
Following closing argument, the jury was given the following instructions:
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