B.L.M. v. Sabo & Deitsch

• Decision Date: 10 June 1997
• Docket Number: No. E015961,E015961
• Citation: 55 Cal.App.4th 823,64 Cal.Rptr.2d 335
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 4428, 97 Daily Journal D.A.R. 7339 B.L.M., Plaintiff and Appellant, v. SABO & DEITSCH et al., Defendants and Respondents.

Page 335

64 Cal.Rptr.2d 335

55 Cal.App.4th 823, 97 Cal. Daily Op. Serv. 4428,

97 Daily Journal D.A.R. 7339

B.L.M., Plaintiff and Appellant, v. SABO & DEITSCH et al., Defendants and Respondents.

No. E015961.

Court of Appeal, Fourth District, Division 2, California.

June 10, 1997.

Review Denied Sept. 17, 1997.

[55 Cal.App.4th 826] Michael B. Montgomery for Plaintiff and Appellant.

Baker, Silberberg & Keener, Michael H. Bailey and George P. Hawley, Santa Monica, for Defendants and Respondents.

OPINION

RAMIREZ, Presiding Justice.

A developer appeals from a summary judgment entered against it in its action for damages against a law firm. We affirm.

FACTS

In April 1989 plaintiff B.L.M., a general partnership, filed an action denominated a "Complaint for Legal Malpractice" against defendants Sabo & Deitsch, a professional corporation, and three individuals, Timothy Sabo, Stephen P. Deitsch, and Christine Youngs. The complaint alleged that in early 1987, B.L.M. had approached the City Council, the Redevelopment Agency and the city staff of the City of Rialto (hereafter sometimes referred to collectively as Rialto) regarding a proposal to construct an apartment project for seniors, "seeking financial assistance in said construction through public financing." As originally proposed, Rialto would have issued public financing and constructed the project. Under that proposal, construction of the project would have required public bidding as well as payment of prevailing wage. A draft agreement was prepared by Finer, Kim & Stearns, the law firm representing B.L.M., calling for the payment of prevailing wage.

The complaint went on to allege that prior to formal consideration of the proposal by Rialto it was determined by the parties that public bidding and payment of prevailing wage made the project economically infeasible; in addition, Rialto wished the developer to take a greater portion of the risk.

As a result of these considerations B.L.M. proposed a project that would be constructed by B.L.M. and acquired subsequently by Rialto through the issuance of certificates of participation.

In July 1987 the Rialto City Council adopted a resolution in which it accepted the financial proposal, approved the preparation of the agreement, appointed a financial adviser to Rialto, and appointed Sabo & Deitsch as special counsel and bond counsel for the project. The complaint alleges that Sabo & Deitsch specifically stated at that time in conversations with B.L.M. that public bidding and payment of prevailing wage were not required on a project financed in this manner because B.L.M. was to undertake the construction. The complaint states that "As a result of the elimination of the requirement for payment of prevailing wage, the project became economically feasible" and that B.L.M., as well as Rialto, relied on that assurance in proceeding to expend funds to plan and develop the project.

Paragraph 15 of the complaint alleges that "[Sabo & Deitsch], and each of them, hold a duty to [B.L.M.] to use such skill, prudence, and diligence as other members of their profession commonly possess and exercise. As a part of the services, [B.L.M.] agreed to perform on behalf of the City of Rialto/Redevelopment Agency, [Sabo & Deitsch] agreed to perform Special Counsel and Bond Counsel services to the benefit of [B.L.M.] as a third party beneficiary to [B.L.M.'s] contract with the City of Rialto/Redevelopment Agency and as such third party beneficiary, [B.L.M.] was entitled to rely upon the documents prepared and opinions expressed in connection with the project." [Sic.]

In August 1987 Rialto approved certain management agreements and the development agreement in connection with the financing of the project. On September 1, 1987, a memorandum of understanding On November 3, 1987, a revised MOU was entered into which included a detailed financial analysis of the project. A second revised MOU was adopted by Rialto in February 1988. That MOU contemplated the issuance of certificates of participation by Rialto in the amount of $22,500,000; B.L.M. was entitled to a development fee not to exceed $3,500,000.

(MOU) between B.L.M. and Rialto concerning the financing and development of the project was entered into; the MOU had been "prepared and/or reviewed" by Sabo & Deitsch. The MOU provided that B.L.M. was to obtain conventional interim financing for the project and was to construct the project within 24 months; simultaneously with the closing of the interim financing, Rialto was to cause the sale and delivery of certain certificates of participation, the proceeds of which were to be held in escrow until the construction of the project was complete and a specified occupancy level was reached. At that point, the proceeds were to be used to purchase the completed project from the developer.

On April 28, 1988, Youngs did not attend the closing meeting but instead, by telephone, indicated that Sabo & Deitsch would not let her provide a final opinion of bond counsel because their review had established that payment of prevailing wage was necessary as a condition of validly issuing the certificates of participation.

As a result of the refusal of Sabo & Deitsch to issue the opinion of bond counsel the project could not go forward. B.L.M. alleged in the complaint that it was damaged in the amount of $415,000, the amount it had expended on the project already, and was further damaged in the amount of $3,500,000, representing the lost developer's fee. B.L.M. alleged a failure on the part of Sabo & Deitsch to exercise "reasonable care, skill and diligence in undertaking to perform legal services related to the providing of Special Counsel and Bond Counsel services for the project." B.L.M. further alleged a duty owed by Sabo & Deitsch to B.L.M. to properly supervise the legal work performed, and breach of that duty. The complaint went on to state that had Sabo & Deitsch "utilized the skill, prudence and diligence as other members of their profession commonly possessed and exercised, [Sabo & Deitsch] would at no time have provided the opinion that prevailing wage was not required and [B.L.M.] therefore would not have relied thereon to their detriment." B.L.M. then asked for damages in the amount of the money expended as well as the lost developer's fee. ¹

In October 1992 an arbitrator awarded $3,500,000 to B.L.M. Sabo & Deitsch requested a trial de novo. Following grant of that request Sabo & Deitsch filed their motion for summary judgment, based on the argument that B.L.M. "cannot establish the required duty element in this legal malpractice action, because an attorney-client relationship never existed between plaintiff and defendants."

In its ruling on the motion the trial court found that the complaint contained "a single cause of action for professional negligence." The court concluded that Sabo & Deitsch owed no duty to B.L.M. and granted the motion for summary judgment. Judgment was entered in favor of Sabo & Deitsch, and B.L.M. filed this appeal. ²

DISCUSSION

I. Standard of Review

"In reviewing a ruling on a motion for summary judgment, an appellate court (1) 'identif[ies] the issues framed by the pleadings,' (2) 'determine[s] whether the moving party's showing has established facts which negate the opponent's claim and justify a judgment in movant's favor,' and (3) '[w]hen II. Cause of Action for Legal Malpractice

                a summary judgment motion prima facie justifies a judgment, ... determine[s] whether the opposition demonstrates the existence of a triable, material factual issue.'  (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064-1065, 225 Cal.Rptr. 203....)"  (Turner v. Anheuser-Busch, Inc.   (1994) 7 Cal.4th 1238, 1252-1253, 32 Cal.Rptr.2d 223, 876 P.2d 1022.)
                

Our first task in reviewing a motion for summary judgment is to identify the issues framed by the pleadings. In the present case the complaint itself was called a "Complaint for Legal Malpractice." Legal malpractice is, of course, a form of negligence. (Laird v. Blacker (1992) 2 Cal.4th 606, 625, 7 Cal.Rptr.2d 550, 828 P.2d 691.)

"The elements of a cause of action in tort for professional negligence are: (1) the duty of the professional to use such skill, prudence, and diligence as other members of [the] profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the negligent conduct and the resulting injury; and (4) actual loss or damage resulting from the professional's negligence. [Citations.]" (Budd v. Nixen (1971) 6 Cal.3d 195, 200, 98 Cal.Rptr. 849, 491 P.2d 433.)

In its complaint B.L.M. alleged that Sabo & Deitsch owed a duty to B.L.M. "to use such skill, prudence, and diligence as other members of their profession commonly possess and exercise" in performing legal services related to the project, and further alleged that Sabo & Deitsch owed a duty to B.L.M. to properly supervise the legal work performed. The complaint alleged that Sabo & Deitsch failed to exercise due care in the performance of its duty by providing the opinion that prevailing wage would not be required on the project; that B.L.M. reasonably relied to its detriment on that opinion; and that B.L.M. suffered substantial damage as a result of its reliance. Thus, on its face the complaint alleged the elements of a cause of action for legal malpractice.

A. No Liability for Negligence to Non-client

Between the filing of the complaint and the filing of the motion for summary judgment the California Supreme Court issued its opinion in Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 11 Cal.Rptr.2d 51, 834 P.2d 745 (hereafter Bily ), an opinion that addressed the extent to which liability for professional malpractice extends to those who are not clients of the professional. Specifically, that court considered "whether and to what extent an accountant's duty of care in the preparation of an independent audit of a client's...