Cassady v. Morgan, Lewis & Bockius Llp

• Citation: 51 Cal.Rptr.3d 527,145 Cal.App.4th 220
• Decision Date: 29 November 2006
• Docket Number: No. B177747.,B177747.
• Court: California Court of Appeals
• Parties: Ralph CASSADY, Plaintiff, Respondent and Appellant, v. MORGAN, LEWIS & BOCKIUS LLP, Defendant and Appellant.

51 Cal.Rptr.3d 527

145 Cal.App.4th 220

Ralph CASSADY, Plaintiff, Respondent and Appellant, v. MORGAN, LEWIS & BOCKIUS LLP, Defendant and Appellant.

No. B177747.

Court of Appeal, Second District, Division 3.

November 29, 2006.

Certified for Partial Publication.^*

Morgan, Lewis & Bockius LLP (Los Angeles), Andrea Sheridan Ordin, Los Angeles, Salvatore Picariello, Irvine; Morgan, Lewis & Bockius (San Francisco), Thomas M. Peterson, Los Angeles, for Defendant and Appellant.

Law Offices of Baird A. Brown and Baird A. Brown; Greines, Martin, Stein & Richland, Marc J. Poster, Los Angeles, for Plaintiff, Respondent, and Appellant.

ALDRICH, J.

INTRODUCTION

Appellant Morgan, Lewis & Bockius LLP (hereinafter Morgan Lewis) appeals from the trial court's grant of respondent Ralph Cassady's motion for a new trial on his statutory and common law indemnity claims. Cassady, an attorney, performed legal services for a client, Rallie P. Rallis, for over 20 years. During that period, Cassady practiced law with several firms and in a variety of capacities. For a 13-month period, Cassady was employed as of counsel by Morgan Lewis. Years later, Rallis sued Cassady, Morgan Lewis, and other firms and attorneys with whom Cassady had been affiliated, for a variety of claims including professional negligence, premised on numerous aspects of Cassady's and those entities' representation occurring over a multiyear period. Morgan Lewis provided a defense for several other attorneys, but not for Cassady. After incurring legal fees for his defense, Cassady sought indemnity from Morgan Lewis under Labor Code section 2802,¹ which requires employers to indemnify employees for expenses or losses incurred in direct consequence of the discharge of their duties. Morgan Lewis prevailed on a summary judgment motion which disposed of Cassady's claims, but the trial court subsequently reversed course and granted Cassady a new trial. Morgan Lewis appeals from that ruling.

We affirm the trial court's grant of a new trial. Under section 2802, an employer must indemnify an employee for attorney's fees and costs incurred in defending a third party lawsuit, where such expenses are necessary and the lawsuit is based on the employee's conduct within the course and scope of his or her job duties. Because proof that the defense costs were incurred by the employee in direct consequence of the discharge of his or her duties is an element of the claim, the employee has the burden to prove the conduct on which he or she was sued arose in the course and scope of the employment. To meet that burden on the somewhat unique facts of this case, Cassady bears the burden to prove which expenses he incurred as a result of performance of his duties with Morgan Lewis as opposed to other employers. However, Morgan Lewis's summary judgment motion failed to show that Cassady lacked, or could not obtain, sufficient evidence to prove this element of his claim. In the unpublished portion of the opinion, we likewise conclude Morgan Lewis failed to meet its burden to prove Cassady lacked evidence to establish his common law indemnity claim. Therefore, the trial court appropriately granted the motion for a new trial.

FACTUAL AND PROCEDURAL BACKGROUND²

1. The Rallis action.

Attorney Cassady served as legal counsel for Rallis and for various corporations and business entities in which Rallis was an officer, director, or shareholder, from 1969 until November 1994. During that period, Cassady practiced with several different law firms, including Morgan Lewis,³ and was Rallis's principal contact at each firm. As of January 1987, Cassady, practicing as Cassady Corporation, was a partner of Hahn Cazier. In February 1987, substantially all the attorneys and employees of Hahn Cazier joined the Morgan Lewis firm. Cassady was employed by Morgan Lewis as of counsel for approximately 13 months, from February 1, 1987 through March 4,1988.

On January 4, 1995, Rallis sued Cassady, Morgan Lewis, and other firms and attorneys with whom Cassady had practiced while representing Rallis (the Rallis action). Rallis alleged legal malpractice, breach of fiduciary duty, breach of contract, negligent and intentional misrepresentation, and equitable indemnity, for alleged acts of professional negligence committed by Cassady and the other defendants between approximately 1982 through 1994. Some of the conduct upon which Rallis's claims were premised was alleged to have occurred while Cassady was employed by Morgan Lewis; some was alleged to have occurred while Cassady practiced with other law firms.

Rallis's Revised Second Amended Complaint alleged that Cassady, and the various firms with whom Cassady was associated at the applicable time periods, had advised and represented Rallis in regard to the formation, acquisition, and affairs of various business entities, including Mark Industries, Inc., American Hi-Lift Corporation of California (AHLC), and Mark Equipment Center of South Florida (MEC-SF). Cassady was also alleged to have been a co-shareholder, officer and director in various businesses which Rallis formed or acquired.

The Rallis complaint further alleged that in 1984, MEC-SF terminated Edward Moloney, the company's general manager and a 10 percent stockholder. During the period 1984 through 1987, Cassady precipitated Moloney's lawsuit by mishandling negotiations and failing to keep Rallis apprised of the risks and progress of the matter. Rallis also alleged professional negligence and related claims in regard to a plethora of other transactions, including: the acquisition of a competitor in 1984; the sale of a property to a corporate officer in 1984; the sale of MEC-SF's assets in 1986 and the subsequent wind-up of its affairs; the handling of distributions to MEC-SF stockholders in or after 1986; a 1988 stock sale and indemnity agreement; a 1990 Mark Industries transaction; and a 1993 proposed stock offering.

2. Defense and resolution of the Rallis action.

Morgan Lewis retained the law firm of Sheppard Mullin to defend it and certain former Hahn Cazier partners in the Rallis action. Morgan Lewis did not provide a defense to Cassady, who had already retained his own counsel, Baird A. Brown. Brown also defended Cassady Corporation, Cassady & Klein, Ray Klein, and Klein Corporation in the Rallis action. Morgan Lewis subsequently advised Cassady that it would not indemnify Cassady or pay his defense fees.

By 1999, all Rallis's claims had been dismissed either voluntarily, on demurrer, or through summary adjudication and summary judgment. The summary judgments were granted on statute of limitations grounds. Rallis appealed. This court affirmed in part and reversed in part. (Rallis v. Cassady (Oct. 24, 2000, B127047, B131724) opn. ordered nonpub. Jan. 24, 2001.) We reversed the judgments in favor of Cassady, Cassady Corporation, Cassady & Klein, and another defendant. We affirmed the judgments in favor of Morgan Lewis and Hahn Cazier. Cassady and the other remaining defendants entered into a settlement agreement with Rallis, and the case was dismissed with prejudice.

3. The parties' indemnity claims.

In July 2002, Cassady sued Morgan Lewis for indemnity, under both section 2802 and the common law. Cassady sought fees and costs of approximately $280,000, plus interest, and the attorney's fees and costs incurred in enforcing his section 2802 rights. (§ 2802, subd. (c).) Cassady's indemnity demand included defense costs arising from his alleged conduct both at Morgan Lewis and while a partner at Hahn Cazier.

Morgan Lewis cross-complained against Cassady and certain other defendants in the Rallis action, seeking (1) contractual indemnity based upon a 1987 agreement between Cassady and Morgan Lewis, (2) reimbursement under section 2865,⁴ and (3) declaratory relief. Morgan Lewis sought approximately $367,000 in fees and costs it incurred defending the Rallis action.

Cassady moved for summary adjudication on Morgan Lewis's section 2865 indemnity claim. The trial court denied the motion.

Morgan Lewis moved for summary judgment against Cassady, on the ground Cassady could not establish essential elements of his claims. Morgan Lewis contended, in regard to Cassady's section 2802 indemnity claim, that: (1) Cassady did not possess, and could not reasonably obtain, evidence demonstrating which defense costs he necessarily expended in, direct consequence of the discharge of his duties while at Morgan Lewis; and (2) Cassady could not establish Morgan Lewis's liability under section 2802 based solely on what Rallis alleged Cassady did while employed at Morgan Lewis. Morgan Lewis argued that Cassady's common law indemnity claim, like the section 2802 claim, "must fail because Cassady does not possess and cannot reasonably obtain the needed evidence."

Cassady responded, inter alia, that "the law is that [Morgan Lewis] is responsible for all of Cassady's fees and costs in the Rallis action except to the extent that [Morgan Lewis] can provide a reasonable basis for apportioning the fees and costs." Cassady conceded that certain transactions about which Rallis had complained were not indemnifiable because they occurred when Cassady was not employed at Morgan Lewis. Cassady estimated that the cost of defending those actions was $10,000. According to Cassady, the remaining attorney's fees he incurred defending the Rallis action amounted to approximately $280,000.

The trial court granted Morgan Lewis's summary judgment motion on the grounds advanced by Morgan Lewis.

The trial court then conducted a bench trial on Morgan Lewis's cross complaint, and ruled in Cassady's favor.⁵

4. Cassady's motion for a new trial.

Cassady moved, pursuant to Code of Civil Procedure section 657, for a new trial on the* ground the trial court committed legal error when granting Morgan Lewis's summary judgment motion.⁶ (Code Civ. Proc., § 657, subd. (7).) The trial court granted the motion, concluding it had erred when it...