Skarbrevik v. Cohen, England & Whitfield

• Decision Date: 25 June 1991
• Docket Number: No. B039981,B039981
• Citation: Skarbrevik v. Cohen, England & Whitfield, 282 Cal.Rptr. 627, 231 Cal.App.3d 692 (Cal. App. 1991)
• Parties: Gunnar SKARBREVIK, Plaintiff and Respondent, v. COHEN, ENGLAND & WHITFIELD and Stuart A. Comis, Defendants and Appellants.
• Court: California Court of Appeals

Page 627

282 Cal.Rptr. 627

231 Cal.App.3d 692

Gunnar SKARBREVIK, Plaintiff and Respondent, v. COHEN, ENGLAND & WHITFIELD and Stuart A. Comis, Defendants and Appellants.

No. B039981.

Court of Appeal, Second District, Division 4, California.

June 25, 1991.

Review Denied Oct. 17, 1991.

Haight, Brown & Bonesteel, Roy G. Weatherup, Richard F. Runkle, Thomas N. Charchut, Linda L. Streeter, and Kenneth C. Byrne, Santa Monica, for defendants and appellants.

Mathon & Rosensweig, Michelle Cooper, William Rosensweig, Beverly Hills, Buchalter, Nemer, Fields & Younger, Marcus M. Kaufman, and George L. Hampton, Newport Beach, for plaintiff and respondent.

EPSTEIN, Associate Justice.

Attorney Stuart A. Comis and the law firm of Cohen, England & Whitfield appeal from a judgment entered against them and in favor of plaintiff Gunnar Skarbrevik after a jury trial on the issues of conspiracy to defraud and professional negligence. ¹ The principal questions presented in this appeal concern the liability of counsel of a close corporation to a minority shareholder for professional negligence, and the liability of a corporate attorney for conspiring with majority shareholders to defraud the minority shareholder by wrongfully diluting his interest in the corporation.

We hold that defendant attorneys owed no legal duty to plaintiff, and thus conclude that the court erred in submitting the theory of professional negligence to the jury. We further hold that plaintiff's cause of action for conspiracy to defraud against Comis is barred by principles announced in Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 35 Cal.Rptr. 652, Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 and Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 260 Cal.Rptr. 183, 775 P.2d 508. For these reasons, we reverse the judgment.

PROCEDURAL SUMMARY

At one time, plaintiff Gunnar Skarbrevik was an officer, director, employee, and 25 percent shareholder of American Pacific Insurance Brokers, Inc. ("American Pacific" or "corporation") together with Martin Erlich, Jerry Greenblatt, and Dale Potter, each of whom also was an officer, director, employee, and 25 percent shareholder of the corporation.

In July 1985, plaintiff filed this action against the corporation and against Erlich, Greenblatt, and Potter. ² In June 1986, plaintiff amended his complaint (Code Civ.Proc., § 474), inserting the names of attorney Stuart A. Comis and the law firm, Cohen, England & Whitfield, in place of Doe I and Doe II, respectively. In February 1987, plaintiff filed his second amended complaint against the corporation, Erlich, Greenblatt, Potter and the attorney parties. This is the charging pleading. In it plaintiff alleged causes of action against the non-attorney parties for wrongful termination, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, declaratory relief, fraud, constructive fraud, conspiracy to defraud, intentional infliction of emotional distress, negligent infliction of emotional distress, specific performance and breach of oral contract. Against the attorney defendants, plaintiff alleged causes of action for conspiracy to defraud, professional negligence, intentional infliction of emotional distress, and negligent infliction of emotional distress.

Prior to trial, plaintiff entered into a settlement agreement with the corporation, Erlich, Greenblatt, and Potter. The settlement provided for a stipulated judgment of $540,000 in plaintiff's favor, to be satisfied by payment of $90,000 within a specified time. The settlement recited that the $90,000 was to compensate plaintiff solely for emotional distress injuries suffered during the course of his employment with the company.

The case proceeded to jury trial against the attorney defendants on the causes of action for conspiracy to defraud and professional negligence. Plaintiff did not pursue his claims of intentional and negligent infliction of emotional distress.

The jury returned a general verdict in favor of plaintiff and against defendants in the amount of $1 million. ³ With respect to the issue of punitive damages, the jury also made special findings that defendant Comis had conspired to commit fraud, and that there was clear and convincing evidence that, in so doing, he acted with malice ⁴ but not oppression, and that he committed fraud against the plaintiff. Thereafter, the jury assessed punitive damages against Comis in the amount of $15,000. The trial court reduced the jury's award against the attorney defendants by $90,000, recognizing the settlement with the other defendants. Plaintiff's net judgmentwas $910,000 in compensatory damages against the attorney defendants, and $15,000 in punitive damages against Comis.

The attorney defendants' motions for a new trial and for judgment notwithstanding the verdict were denied. This appeal followed.

FACTUAL SUMMARY ⁵

In 1968, Erlich founded and incorporated American Pacific, an insurance brokerage firm. In 1975, plaintiff merged his insurance agency into Erlich's, and each became a 50 percent shareholder in American Pacific. Plaintiff paid Erlich $75,000 to become an equal partner.

In 1982, plaintiff arranged a merger between American Pacific and an insurance agency owned by Greenblatt and Potter. Plaintiff, Erlich, Greenblatt and Potter each became a 25 percent shareholder in American Pacific, with each owning 100 shares of stock. Each was also an officer, director and employee of the corporation. Defendant Comis represented American Pacific in its merger with the Greenblatt-Potter agency. ⁶

At a meeting held on July 13, 1983, Erlich advised plaintiff that Greenblatt, Potter and he "were unhappy with [him] and they could not afford to keep [him] on the books." Plaintiff suggested that the other shareholders buy him out. He thought his shares were worth $720,000, and asked for a buy out at $6,000 a month for 10 years. After some negotiation, it was agreed that Erlich, Greenblatt and Potter would pay plaintiff $540,000 for his shares, the payment to be made in monthly installments of $4,500 for 10 years. Plaintiff was told that Comis would prepare the necessary documents to effect the buy out. A few days after the meeting, plaintiff was asked to resign from his position as director and officer of American Pacific. His resignation became effective on July 31, 1983, and his employment with the corporation ended on that date.

At Erlich's request, Comis prepared the necessary documents to enable American Pacific to repurchase plaintiff's stock--a redemption agreement, a promissory note, a consulting agreement, and a covenant not to compete--and sent them to Erlich, Greenblatt and Potter along with a transmittal letter dated July 25, 1983. Comis also sent them a letter addressed to plaintiff, dated July 25, 1983, which he asked them to forward to plaintiff along with the documents. In that letter, Comis advised plaintiff that he was representing the corporation and suggested that, because plaintiff's interests were adverse to the interests of the corporation, he retain independent counsel for advice. Apparently, that letter was never sent to plaintiff. In August 1983, plaintiff contacted Erlich and asked him if the papers were ready. Erlich told plaintiff that, on legal advice, he, Greenblatt and Potter had decided not to pay him anything for his shares and that no contract would be forthcoming.

In December 1983, Greenblatt contacted Comis and told him that because of plaintiff, the corporation was experiencing serious financial difficulties. He said that in order to aid the corporation, he, Erlich, and Potter had used all of their own property to secure corporate loans and that they had reduced their salaries. Greenblatt also told Comis that he, Erlich and Potter felt that it was appropriate that the corporation compensate them for their financial sacrifices and asked whether the corporation could do so by issuing them additional shares of stock.

In a December 27, 1983 letter to Greenblatt, Comis offered detailed advice about the proposal to issue additional stock. That letter is one of two pieces of correspondence central to plaintiff's conspiracy claim against the attorney defendants. Comis began with the observation that he was sorry to hear that plaintiff "will apparently not even discuss the repurchase of his stock by the three of you or the corporation" and that the remaining shareholders "apparently concluded that the best way to face this problem is to attempt to dilute [plaintiff's] ownership interest in the corporation by issuing large numbers of shares to [themselves], thereby reducing [plaintiff's] percentage of stock in the corporation." Comis explained that the stock dilution plan was complicated and would take a longer period of time than envisioned.

Comis pointed out the principal obstacle: the corporate articles contained a preemptive rights provision, ⁷ which required that before additional stock could be issued to the three of them, 25 percent of the new shares would have to be offered to plaintiff. Noting that this would defeat the purpose of the contemplated stock issuance, Comis explained that this problem could be resolved by amending the articles of incorporation to eliminate the preemptive rights provision. But such an amendment would have to be approved by the board of directors and by stockholders with a majority of the voting power. Since Comis felt that plaintiff would not voluntarily consent to the amendment, he advised Greenblatt that it would be necessary to hold a "special shareholders' meeting" to approve the amendment and that plaintiff would have to be given notice of the meeting. Comis suggested 10 days notice to comply with the Corporations Code. ⁸ He also enclosed a set of documents drafted to accomplish the elimination of the preemptive rights provision.

Comis advised Greenblatt that any action taken as officers and directors of American...