Cicone v. Urs Corp.

• Citation: 183 Cal.App.3d 194,227 Cal.Rptr. 887
• Court: California Court of Appeals
• Decision Date: 10 July 1986
• Parties: Frank J. CICONE, Cross-complainant and Appellant, v. URS CORPORATION et al., Cross-defendants and Respondents. F004334.

Page 887

227 Cal.Rptr. 887

183 Cal.App.3d 194

Frank J. CICONE, Cross-complainant and Appellant, v. URS CORPORATION et al., Cross-defendants and Respondents.

F004334.

Court of Appeal, Fifth District, California.

July 10, 1986.

As Modified on Denial of Rehearing Aug. 8, 1986.

Robert E. King, John D. Gibson, Bakersfield, and Arthur E. Schwimmer, Los Angeles, for cross-complainant and appellant

Howard, Rice, Nemerovski, Canady, Robertson & Falk, Robert E. Gooding, Jr., Ann Brick, David B. Goodwin, San Francisco, Borton, Petrini & Conron and Bob H. Joyce, Bakersfield, for cross-defendants and respondents.

OPINION

MARTIN, Associate Justice.

This is an appeal from a judgment of dismissal following the sustaining of a general demurrer to an original cross-complaint without leave to amend.

On June 10, 1983, plaintiffs Gerald D. Lucas, Janice H. Lucas, and Lucas Family Trust filed a complaint alleging legal malpractice against defendants Frank J. Cicone and Frank J. Cicone Law Corporation et al. On October 25, 1983, defendants answered the complaint and filed a cross-complaint for comparative equitable indemnity, damages and punitive damages against URS Corporation, Arthur H. Stromberg and Richard W. Canady.

Cross-defendants filed general and special demurrers to the cross-complaint and a motion to strike the punitive damage allegations of the cross-complaint on December 23, 1983.

The demurrer and motion to strike were argued by counsel and submitted on January 26, 1984. On April 27, 1984, the lower court granted the general demurrer as to all causes of action without leave to amend. On June 26, 1984, the cross-complaint was dismissed with prejudice and judgment was entered in favor of the cross-defendants on June 27, 1984. This appeal followed.

FACTS

Cicone primarily challenges the trial court's decision to sustain the demurrers without leave to amend.

This case involves a legal malpractice suit brought against Cicone, an attorney, by plaintiffs, his former clients. Plaintiffs alleged Cicone was guilty of malpractice in conducting negotiations for the sale of plaintiffs' business, Advanced Production Service, Inc. (Advanced), to cross-defendant URS Corporation (URS). Cicone cross-complained against URS, its president and their attorney, Canady, for fraud, negligent misrepresentation, breach of good faith and fair dealing and equitable indemnity.

Cicone represents the factual allegations upon which the claims of fraud and deceit are based would be amended beyond those currently contained in the present cross-complaint to allege as follows:

In early September 1981, URS, through its president, Stromberg, reached a preliminary agreement with Gerald Lucas, President of Advanced, for URS to purchase from Lucas and his family the stock and assets of Advanced for $3.5 million cash. The final agreement was to be prepared by counsel for URS, and, at Stromberg's request, it was to be executed by the parties in as short a period of time as was reasonable. Lucas then engaged Cicone to represent him and his family in consummating the transaction.

Shortly after entering into the preliminary agreement, Advanced gave the accountants and other personnel of URS full access to the books and records of Advanced, and the respective corporations' accountants and personnel were in frequent communication about Advanced's financial data.

Prior to October 13, 1981, URS presented Advanced with a proposed final agreement. The agreement provided in part that the sellers warranted the accuracy of an unaudited balance sheet of Advanced as of September 30, 1981, and included a warranty that Advanced had no liabilities other than those shown on the balance sheet. A number of other warranties in the agreement were stated to be made only to the best knowledge of sellers.

At a meeting on October 13, 1981, attended by Gerald Lucas, Cicone, Lucas' personal accountant R. Randall Richardson, Stromberg, and URS' attorney, Canady, Cicone advised Stromberg and Canady the sellers could not and would not guarantee the accuracy of the balance sheet. Canady, with Stromberg's tacit approval, replied the buyer understood and URS would deem the sellers to be guaranteeing the information in the balance sheet only to sellers' best knowledge.

Cicone would further allege that Canady's statement, made on behalf of Stromberg and URS, constituted a promise that URS would accept the balance sheet as correct only to the best of the sellers' knowledge. As Canady knew, that promise was false and was made without any intention of performing it, for cross-defendants intended to rely on the strict warranty contained in the written agreement. The promise was made for the purpose of inducing Cicone to rely on it and thereby to advise the sellers to follow through with the sale and to sign the final agreement. Cicone did rely on the promise and did advise the sellers to sign the agreement, and as a result the sellers did sign the agreement. Cicone's reliance on the promise was justifiable because the circumstances under which it was made gave him reason to believe it would be carried out and Cicone had no reason to disbelieve Canady.

The balance sheet was correct to the best of the sellers' knowledge. However, shortly after the transaction had been consummated, URS, through Stromberg, made a claim against the sellers based on a $200,000 understatement in the balance sheet of deferred tax liabilities, of which the sellers had been unaware. The sellers, through counsel other than Cicone, settled the claim without litigation for $125,000 and filed a legal malpractice action against Cicone. As a result, Cicone may incur liability to the sellers, and is required to defend a malpractice action, thereby incurring expense, losing time from his practice, and facing impairment of his professional reputation.

DISCUSSION

I. FRAUD AND DECEIT

Cicone contends on appeal the lower court abused its discretion in sustaining the demurrer to the original cross-complaint without leave to amend.

Preliminarily, the general principles governing demurrers should be noted: The party against whom a complaint or cross-complaint has been filed may object by demurrer to the pleading where it does not state facts sufficient to constitute a cause of action. (Code Civ.Proc., § 430.10, subd. (e).) Sustaining a general demurrer without leave to amend is not an abuse of discretion if it appears from the pleading there is no reasonable probability the defect can be cured by amendment under applicable substantive law. (Vater v. County of Glenn (1958) 49 Cal.2d 815, 821, 323 P.2d 85; Sackett v. Wyatt (1973) 32 Cal.App.3d 592, 603, 108 Cal.Rptr. 219.) The burden is on the cross-complainant to demonstrate the lower court abused its discretion. The cross-complainant must show in what manner he can amend his cross-complaint and how that amendment will change the legal effect of his pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349, 134 Cal.Rptr. 375, 556 P.2d 737.) If the demurrer was properly sustained on any ground, then the lower court will be affirmed. (Munoz v. Davis (1983) 141 Cal.App.3d 420, 422, 190 Cal.Rptr. 400.)

In the third, fourth, fifth and sixth causes of action of the cross-complaint, Cicone attempts to allege causes of action for fraud and deceit.

Fraud

Fraud is an intentional tort, the elements of which are (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Seeger v. Odell (1941) 18 Cal.2d 409, 414, 115 P.2d 977; Nelson v. Gaunt (1981) 125 Cal.App.3d 623, 635, 178 Cal.Rptr. 167.) ¹

Every element of the cause of action for fraud must be alleged in the proper manner and the facts constituting the fraud must be alleged with sufficient specificity to allow defendant to understand fully the nature of the charge made. (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 109, 128 Cal.Rptr. 901.)

The lower court determined, inter alia, cross-defendants owed no duty to Cicone and therefore Cicone failed to state a cause of action, citing for this proposition, among others, Groswird v. Hayne Investments, Inc. (1982) 133 Cal.App.3d 624, 184 Cal.Rptr. 123. However, a rehearing was granted in Groswird and the subsequent opinion was not certified for publication.

Duty

Cross-defendants argue a lack of duty owed to Cicone. However, this argument appears in relation to the causes of action for negligence and indemnity. More properly it could be stated, inferentially everyone has a duty to refrain from committing intentionally tortious conduct against another. Thus, a promise material to the contract which is made without any intention of performing it is deemed a misrepresentation of fact. (Civ.Code, §§ 1572, subd. (4), 1710, subd. (4); Jacobs v. Freeman (1980) 104 Cal.App.3d 177, 192, 163 Cal.Rptr. 680.)

Cicone alleges cross-defendants made a promise without disclosing they entertained no intention to perform said promise to deem the warranty of the financial statement as only to sellers' best knowledge and belief.

Although a duty to disclose a material fact normally arises only where there exists a confidential relation between the parties or other special circumstances require disclosure, where one does speak he must speak the whole truth to the end that he does not conceal any facts which materially qualify those stated. (Ibid.) One who is asked for or volunteers information must be truthful, and the telling of a half-truth calculated to deceive is fraud. (Goodman v. Kennedy, supra, 18 Cal.3d 335, 346-347, 134 Cal.Rptr. 375, 556 P.2d 737; Rogers v. Warden (1942) 20 Cal.2d 286, 289, 125 P.2d 7.)

"The extent of liability an attorney may incur toward third persons, while the attorney is acting on behalf of a client, has been the subject of divergent opinion in various American jurisdictions, the traditional view being that an attorney may not generally be held...