Beane v. Paulsen

• Citation: 26 Cal.Rptr.2d 486,21 Cal.App.4th 89
• Decision Date: 20 December 1993
• Docket Number: No. C014016,C014016
• Court: California Court of Appeals
• Parties: Zoe Angela BEANE, as executrix etc., Plaintiff and Appellant, v. John PAULSEN, et al., Defendants and Respondents. Civ.

Page 486

26 Cal.Rptr.2d 486

21 Cal.App.4th 89

Zoe Angela BEANE, as executrix etc., Plaintiff and Appellant, v. John PAULSEN, et al., Defendants and Respondents.

Civ. No. C014016.

Court of Appeal, Third District, California.

Dec. 20, 1993.

[21 Cal.App.4th 92] Roy A. Gilbert, Sacramento, for plaintiff and appellant.

Jeanne M. Carroll, Law Office of Steven A. Lewis, Sacramento, for defendants and respondents.

DAVIS, Associate Justice.

Madeline Tucker ¹ brought this malpractice action in April 1991 against her former

                attorneys, alleging that they allowed her meritorious claim in a federal bankruptcy proceeding to be dismissed for lack of prosecution and that this dismissal had adverse res judicata effects in her related state court action. 2  Defendants John Paulsen and Robert Davis brought a motion for summary judgment premised on two grounds. 3  First, they claimed the statute of limitations (§ 340.6) had expired.  Second, they asserted they were released from any liability for malpractice committed against the plaintiff when they ceased practicing with their former partner.  The trial court granted their motion.  Finding neither of these arguments meritorious, we shall reverse and remand
                

SCOPE OF REVIEW

Two factors simplify our review of this matter. With respect to the framework of legal principles that determines which facts are material in the context of this proceeding (Andalon v. Superior Court (1984) 162 Cal.App.3d 600, 604-605, 208 Cal.Rptr. 899), the nature of the grounds for the defendants' summary judgment motion does not implicate the substantive law undergirding the allegations of the complaint, so we are not concerned with the pleadings. As for the materials from which we are to determine whether there are "triable" issues presented, the trial court sustained the defendants' evidentiary objection to the affidavit filed by the plaintiff in opposition to the motion (which among its other serious flaws failed to authenticate the exhibits attached to it). ⁴ Thus, we depart from the paradigm for appellate review of summary judgment motions (see AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064-1065, 225 Cal.Rptr. 203), and simply decide de novo the question of the legal significance of the facts adduced by the defendants. ⁵

FACTS

To quote the genesis of this matter from our opinion in Tucker v. IMCO Realty Services, supra, Mrs. Tucker (a retired schoolteacher) and her son (Bernard Ferris) "were co-owners of a duplex in Fair Oaks. On March 31, 1983, the 79-year-old appellant and her son executed loan documents, including a note for $105,000 and a deed of trust on the property.... Ferris and his partners, Bill and Clay Biscoe, used the loan proceeds to purchase a bar." (Slip op. at p. 3.)

When the business failed, Ferris and his partners filed for bankruptcy. In an effort to prevent foreclosure on her home, Mrs. Tucker retained William Dunbar to represent her in the bankruptcy proceedings in an effort to rescind the note on grounds of undue influence. He filed an adversary complaint in the action in May 1985. In January 1987, Mr. Dunbar associated E. John Vodonick and his firm, Paulsen, Vodonick & Davis (PVD), in the bankruptcy action; Mr. Vodonick then filed a state court action (Tucker v. IMCO Realty, supra ) in her behalf in March 1987, ⁶ as well as filing her answer in an unlawful The bankruptcy court issued a notice of intent to dismiss for failure to prosecute in August 1987. The following month, it issued the order of dismissal.

detainer action brought by the holder of the note on the Fair Oaks property. In May 1987, the Fair Oaks property was lost to foreclosure, although Mrs. Tucker remained in possession until March 1991.

PVD was the business name of the professional corporation of Paulsen & Vodonick, Ltd. (formed in 1985), in which the three partners were shareholders. In February 1988, the three principals of Paulsen & Vodonick, Ltd., agreed to sever their relationship. Mr. Vodonick vacated their shared offices and relocated to Roseville in March 1988. Defendants Paulsen and Davis withdrew their ownership interests in the corporation and established a joint practice. Mr. Vodonick thus became the sole shareholder of Vodonick & Paulsen, Ltd. He maintained Mrs. Tucker as his client. At some point, he told her he was setting up a new practice with Mr. Dunbar. He could not recall whether he ever told her that defendants Paulsen and Davis would no longer be representing her; in any event, he did not solicit her express ratification of the termination of their representation of her.

Although we do not find a copy of the letter itself in the record, apparently in August 1988 defendant Paulsen directed his bookkeeper to send notices of past due accounts to former PVD clients, including those currently represented by Mr. Vodonick (such as Mrs. Tucker), in order that the liabilities of the corporation could be satisfied. This notice included a statement that the principals of PVD had split into separate practices. Mr. Vodonick wrote a letter of complaint to defendant Paulsen, asking him not to have any further correspondence with Mr. Vodonick's current clients and stating that he instructed his clients to ignore any future billings from either defendant. According to defendant Paulsen's reply, he had been told by Mr. Dunbar that apparently Mrs. Tucker was upset "because [she] had received a bill indicating that her account was overdue but, apparently, she ha[d] paid her bill to [Mr. Vodonick]."

Mr. Vodonick noticed a motion for February 27, 1989, to set aside the September 1987 bankruptcy court order of dismissal. However, he failed to appear at the scheduled hearing and the court denied the motion. He filed a petition for reconsideration, which the court denied in April 1989, specifically disbelieving his proffered excuse for failing to appear at the earlier hearing.

Meanwhile, "In January 1989, [the defendants in the state court action] noticed a motion for summary judgment ... on the ground, inter alia, that the bankruptcy court dismissals were on the merits and covered all the claims asserted in [Mrs. Tucker]'s ... complaint.... [p] The trial court granted summary judgment [in May 1989], ruling that 'the dismissal of the adversary action in Bankruptcy Court is res judicata and is a bar to the action.' " (Tucker v. IMCO Realty, supra, slip op. at p. 6.)

In September 1989, Mr. Vodonick at last "informed Mrs. Tucker in writing of the dismissal of the adversary complaint and of its negative impact on the underlying state court litigation." Mrs. Tucker made no further payments for any fees or costs after December 1989. However, Mr. Vodonick continued to represent her interests as late as January 1991, when he filed a petition for rehearing of this court's December 1990 decision in Tucker v. IMCO Realty, supra, affirming the summary judgment ruling.

In its ruling on the summary judgment motion in the present action, the trial court stated, "Plaintiff's injury occurred in September 1987 when the adversary claim in bankruptcy was dismissed. The statute of limitations, however, could not begin to run until September 1989 when Mr. Vodonick told plaintiff ... that the case had been dismissed. The continuous representation exception to the statute tolled the statute until 1990 [sic ] when the representation by Mr. Vodonick ceased. Movants represented

plaintiff when the injury occurred .... [p] Movants did not have a standard procedure for advising clients that the firm split up. A notice was sent to plaintiff by movants in August 1988 as a billing for an overdue account. Plaintiff was also told by Mr. Vodonick. Plaintiff then knew that movants were no longer her attorneys, however, plaintiff did not know of the dismissal at that time so the statute did not begin to run until September 1989 as to movants. The action, then, is barred by the statute of limitations."

DISCUSSION

I

Mrs. Tucker was not represented by a partnership but by a professional corporation, PVD. This distinction seems to have escaped the litigants throughout these proceedings. It is not a distinction, however, that affects our analysis of the question of liability of defendants Paulsen and Davis for PVD's negligent provision of professional services.

In California, the Legislature has authorized the formation of professional corporations for the purpose of practicing law if they are registered with the State Bar. (Bus. & Prof.Code, §§ 6160, 6161.) The Legislature has also mandated that the State Bar, as a condition of the registration process, require the corporation to "maintain security by insurance or otherwise for claims against it by its clients" for malpractice. (Id., § 6171, subd. (b).) Accordingly, the State Bar requires "For law corporations that apply to the State Bar for a Certificate of Registration on or after October 27, 1971, security for claims against it by its clients for [malpractice] shall consist of an executed copy of [a written agreement ... by each of the shareholders, jointly and severally guaranteeing payment by the corporation of all claims established against it by its clients for [malpractice] arising out of the practice of law by the corporation....]" (State Bar Law Corp. Rules, rule IV B(3) [See 23 West's Ann.Cal.Codes, part 2 (1981 ed., 1993 cum. supp.) p. 787].) This written guarantee has certain financial limits per claim and is to be offset by any available malpractice insurance. (Ibid.)

Putting aside questions of liability caps or offsets due for insurance (being factual matters unaddressed by the defendants in their summary judgment motion), defendants Paulsen and Davis have joint and several liability to the former client of their corporation as guarantors of PVD's financial responsibility for malpractice. Considering it appears to be undisputed that PVD is insolvent, this would not be any different than their joint and several liability had t...