Shaffery v. Wilson

• Decision Date: 28 July 2000
• Citation: 82 Cal.App.4th 768,98 Cal.Rptr.2d 419
• Court: California Court of Appeals Court of Appeals
• Parties: (Cal.App. 2 Dist. 2000) JOHN SHAFFERY, Cross-complainant and Appellant, v. WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP, Cross-defendant and Respondent. B139451 Filed

98 Cal.Rptr.2d 419 (Cal.App. 2 Dist. 2000)

JOHN SHAFFERY, Cross-complainant and Appellant, v. WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP Cross-defendant and Respondent.

B139451

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA, SECOND APPELLATE DISTRICT, DIVISION ONE

Filed 7/28/00

APPEAL from a judgment of the Superior Court of Los Angeles County, Marvin M. Lager, Judge. Affirmed.

(Super. Ct. No. BC190467)

Hollins & Fields and Howard M. Fields for Cross-complainant and Appellant.

Wilson, Elser, Moskowitz, Edelman & Dicker LLP and Jonathon Sher for Cross-defendant and Respondent.

CERTIFIED FOR PUBLICATION

VOGEL (MIRIAM A.), J.

To the chorus of cases decreeing that a lawyer sued by a former client for professional negligence cannot seek indemnity from the lawyer subsequently retained by the client on the same matter, we add a variation on a familiar refrain: When a lawyer whose fees were paid by his client's insurer is sued by the insurer for malpractice, the lawyer may not seek indemnity from the lawyers retained by the insurer to "monitor" the same case.

FACTS

An employee sued his employer, J&J Snack Foods Corp., for sexual harassment. J&J, as the insured under a $1 million employment practices liability policy issued by Lexington Insurance Company, had coverage for sexual harassment claims. J&J retained John Shaffery (and others included in our subsequent references to Shaffery) to defend the harassment case and paid Shaffery's fees until the deductible amount of the Lexington policy was satisfied, then tendered defense of the case to Lexington. Lexington agreed to defend J&J and entered an agreement with Shaffery for his continued representation of J&J. Lexington also hired the firm of Wilson, Elser, Moskowitz, Edelman & Dicker LLP (WEMED) to act as "monitoring counsel" for the harassment case (the fine points of the relationship between Lexington and WEMED have yet to be resolved).

There were pretrial settlement discussions. The employee demanded $400,000. The case did not settle (the fine points about the amount offered on behalf of J&J have yet to be resolved) and the case went to trial (with Shaffery representing J&J). The employee won (a jury gave him $5 million). J&J fired Shaffery and retained a new lawyer who settled the harassment case for about $2.75 million. J&J then sued Lexington, alleging a bad faith refusal to settle for less than the policy's $1 million limits. The parties settled, with Lexington paying about $2.9 million to J&J.

Lexington then sued Shaffery for legal malpractice, alleging that Shaffery had been negligent in the manner in which he defended the harassment case. Shaffery answered and later cross-complained against WEMED for indemnity. Shaffery alleges that, assuming his negligence contributed to J&J's loss in the harassment case, so too did WEMED's negligence in failing to oversee the work done by Shaffery. WEMED demurred, contending that, for public policy reasons, Shaffery could not sue WEMED. Over Shaffery's opposition, the demurrer was sustained without leave to amend. Shaffery appeals.

DISCUSSION

Shaffery contends his claims against WEMED are not barred by the policy considerations barring a lawyer's lawsuit against predecessor counsel. We disagree.

A.

In Goodman v. Kennedy (1976) 18 Cal.3d 335, a lawyer who had represented a corporation was sued for malpractice by plaintiffs who had purchased stock in the corporation. Our Supreme Court held that the lawyer's duty of care to his client, the corporation, did not extend to the plaintiffs, who were not clients and who dealt at arm's length with the corporation. (Id. at pp. 342-345.) As the court put it, "[t]o make an attorney liable for negligent confidential advice not only to the client who enters into a transaction in reliance upon the advice but also to the other parties to the transaction with whom the client deals at arm's length would inject undesirable self-protective reservations into the attorney's counselling role. The attorney's preoccupation . . . with the possibility of claims based on mere negligence (as distinct from fraud or malice) by any with whom his client might deal 'would prevent him from devoting his entire energies to his client's interests' [citation]. The result would be both 'an undue burden on the profession' [citation] and a diminution in the quality of the legal services received by the client." (Id. at p. 344.)

In Held v. Arant (1977) 67 Cal.App.3d 748, a lawyer who was sued by his former client cross-complained against the lawyer who had replaced him, alleging a claim of traditional indemnity based on the successor lawyer's resolution of the client's matter in a manner that damaged the predecessor lawyer. We held that a lawyer sued for professional negligence does not have the right to seek indemnity from "another lawyer subsequently retained by the suing client in the same matter on the theory that the second lawyer's negligence enhanced rather than reduced the initial loss." (Id. at p. 750.)

In Commercial Standard Title Co. v. Superior Court (1979) 92 Cal.App.3d 934, the plaintiff sued two title insurance companies, alleging a negligent issuance of the lot book guarantee on which the plaintiff had relied when he entered an agreement for the exchange of real property. The title companies cross-complained against the attorney who had represented the plaintiff in the exchange transaction, alleging a right to indemnity. Division One of the Fourth District rejected a claim that the decision in American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, compelled a different result than the one we had reached in Held v. Arant, supra, 67 Cal.App.3d 748, concluding that American Motorcycle did not "purport to make a rule for all seasons." (Commercial Standard Title Co. v. Superior Court, supra, 92 Cal.App.3d at p. 940.)¹

In Gibson, Dunn & Crutcher v. Superior Court (1979) 94 Cal.App.3d 347, a lawyer who was sued by his former client cross-complained against the lawyer who had replaced him, alleging a claim of equitable indemnity based on the successor lawyer's failure to extricate the client from the situation created by the predecessor lawyer. Division Four of our court, writing before the decision in Commercial Standard was final and therefore not relying on it, reached the same result as Commercial Standard. (Gibson, Dunn & Crutcher v. Superior Court, supra, 94 Cal.App.3d at pp. 351-352.)

In Rowell v. TransPacific Life Ins. Co. (1979) 94 Cal.App.3d 818, a disability insurer sued by its insured for bad faith unsuccessfully sought leave to file a cross-complaint for indemnity against the lawyer who had represented the insured when he made his claim for disability benefits. The insurer claimed the lawyer's delay in pursuing the claim was both a contributing cause to the insured's original damage and also an exacerbation of the damage caused by the carrier's own delay. We rejected both theories, explaining that "reasons of policy preclude a lawyer's liability by way of cross-complaint for indemnity for damage to his own client in the course of action against the cross-complaining adversary. The potential of conflict between the client's best interest and the course which the lawyer must take to minimize his own exposure to a cross-complaint from the adversary is untenable in view of the lawyer's duty of undivided loyalty to his client." (Id. at p. 821.)

In Parker v. Morton (1981) 117 Cal.App.3d 751, a lawyer who was sued by his former client cross-complained against the lawyer who had replaced him, alleging that the successor lawyer had exacerbated the client's damages. Division Two of the Fourth District departed from the rules announced in the earlier cases and allowed the cross-complaint to go forward, distinguishing this case on the ground that there was "no choice to be made by the second attorney between alternative remedies" and, therefore, no possibility of a divided loyalty. (Id. at p. 761.) Parker's discordant note stands alone, distinguished, criticized or rejected by every court that has bothered to mention it.

In Goldfisher v. Superior Court (1982) 133 Cal.App.3d 12, Division Two of our court agreed that a successor lawyer cannot sue his predecessor for indemnity, refusing to adopt a rule that would "encourage claims of indemnification where two lawyers successively represented the same client . . . . Differences between lawyer and client respecting malpractice should be limited to themselves. The facts which generally germinate the relief sought at bench are pregnant with the seed of exacerbated conflict. The inevitable consequence is a corrosion of the sacred attributes of complete confidentiality and undivided loyalty which are the heart of the relationship between lawyer and client." (Id. at p. 22.)

In Munoz v. Davis (1983) 141 Cal.App.3d 420, the client, who had been injured in an auto accident, retained a lawyer to sue the other driver, then sued the lawyer for malpractice when he failed to file a timely complaint against the driver. The lawyer, in turn, cross-complained against the driver for indemnity. Division Seven of our court affirmed an order dismissing the cross-complaint, explaining that the lawyer's malpractice caused an injury distinct from the injury caused by the driver and that, therefore, they were not jointly and severally liable. (Id. at pp. 425-430.)

In Holland v. Thacher (1988) 199 Cal.App.3d 924, Division Two of the First District held that a lawyer sued for malpractice by a former client may not cross-complain for equitable indemnity against a successor lawyer hired to extricate the client from the condition created by the predecessor lawyer, noting that this rule "imposes no burden on the predecessor attorney. Through the assertion of an affirmative defense the former attorney is still able to reduce his or her own exposure by the extent of the successor attorney's responsibility for the client's injury. . . . [P]...