Viner v. Sweet

• Decision Date: 23 June 2003
• Docket Number: No. S101964.,S101964.
• Citation: 30 Cal.4th 1232,70 P.3d 1046,135 Cal.Rptr.2d 629
• Court: California Supreme Court
• Parties: Michael VINER et al., Plaintiffs and Respondents, v. Charles A. SWEET et al., Defendants and Appellants.

135 Cal.Rptr.2d 629

30 Cal.4th 1232

70 P.3d 1046

Michael VINER et al., Plaintiffs and Respondents, v. Charles A. SWEET et al., Defendants and Appellants.

No. S101964.

Supreme Court of California.

June 23, 2003.

Munger, Tolles & Olson, Dennis C. Brown, Mark B. Helm, Allison B. Stein, Steven W. Hawkins, Paul J. Watford, Los Angeles; Kester & Isenberg and Charles F. Kester, Woodland Hills, for Defendants and Appellants.

Morrison & Foerster, Marshall L. Small, George C. Harris, San Francisco; Crosby Heafey Roach & May, James T. Wilson, Oakland; Heller Ehrman White & McAuliffe, Robert A. Epsen, Paul W. Sugarman; Thelen Reid & Priest, Wynne S. Carvill; Farella Braun & Martel, Douglas R. Young; Pillsbury Winthrop, Ronald E. Van Buskirk and Robert M. Westberg, San Francisco, for listed law firms as Amici Curiae on behalf of Defendants and Appellants.

Thelen Reid & Priest, Curtis A. Cole, Los Angeles, Cyrus M. Sanai; Law Offices of Charles O'Brien, Walnut Creek, Norman L. Miley and Lynn F. York, Walnut Creek, for The Doctors' Company, Professional Underwriters Liability Insurance Company and Underwriters for the Professions Insurance Company as Amici Curiae on behalf of Defendants and Appellants.

Rogers Joseph O'Donnell & Phillips, Pamela Phillips, San Francisco and Richard A. Jackson, for Rogers Joseph O'Donnell & Phillips, Barger & Wolen, Fish & Richardson, Hancock Rothert & Bunshoft, O'Melveny & Myers, Stradling Yocca Carlson & Rauth, Venture Law Group and Wilson Sonsini Goodrich & Rosati as Amici Curiae on behalf of Defendants and Appellants.

Hinshaw & Culbertson, Ronald E. Mallen and Paul E. Vallone, San Francisco, as Amici Curiae on behalf of Defendants and Appellants.

Altschuler Grossman Stein & Kahan, Bruce A. Friedman, Jeremy E. Pendrey and David B. Dreyfus, Santa Monica, for Los Angeles County Bar Association as Amicus Curiae on behalf of Defendants and Appellants.

Ropers, Majeski, Kohn & Bentley, Mark G. Bonino, San Jose; Stephan, Oringher, Richman & Theodora, Los Angeles, Harry W.R. Chamberlain II, Robert M. Dato, Brian P. Barrow; Robie & Matthai, Edith R. Matthai, Los Angeles, Pamela E. Dunn, Pasadena and Natalie A. Kouyoumdjian, Los Angeles, for Association of Southern California Defense Counsel and Association of Northern California Defense Counsel as Amici Curiae on behalf of Defendants and Appellants.

Parker Mills & Patel, David B. Parker, Los Angeles, Angeli Aragon; Altshuler, Berzon, Nussbaum, Rubin & Demain, Fred H. Altshuler, San Francisco; Russo & Lowry, Los Angeles, and Jason H. Wilson, for the San Francisco Bar Association and the Beverly Hills Bar Association as Amici Curiae on behalf of Defendants and Appellants.

Law Offices of Marjorie G. Fuller and Marjorie G. Fuller, Fullerton, for Orange County Bar Association as Amicus Curiae on behalf of Defendants and Appellants.

Gibson, Dunn & Crutcher, Theodore J. Boutrous and Julian W. Poon, Los Angeles, for Attorneys Insurance Mutual Risk Retention Group, Inc., and Gibson, Dunn & Crutcher as Amici Curiae on behalf of Defendants and Appellants.

Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, Patricia L. Glaser, Los Angeles, Mila Livitz, Peter C. Sheridan and Elizabeth G. Chilton, Los Angeles, for Plaintiffs and Respondents.

James C. Turner, Thomas M. Gordon and Suzanne M. Mishkin for Halt, Inc., as Amicus Curiae on behalf of Plaintiffs and Respondents.

KENNARD, J.

In a client's action against an attorney for legal malpractice, the client must prove, among other things, that the attorney's negligent acts or omissions caused the client to suffer some financial harm or loss. When the alleged malpractice occurred in the performance of transactional work (giving advice or preparing documents for a business transaction), must the client prove this causation element according to the "but for" test, meaning that the harm or loss would not have occurred without the attorney's malpractice? The answer is yes.¹

I

In 1984, plaintiffs Michael Viner and his wife, Deborah Raffin Viner, founded Dove Audio, Inc. (Dove). The company produced audio versions of books read by the authors or by celebrities, and it did television and movie projects.

In 1994, Dove went public by issuing stock at $10 a share. In 1995, the Viners and Dove entered into long-term employment contracts guaranteeing the Viners, among other things, a certain level of salaries, and containing indemnification provisions favorable to the Viners. The Viners received a large share of Dove's common stock and all of its preferred cumulative dividend series "A" stock.

Thereafter, Michael Viner discussed with longtime friend David Povich, a partner in defendant law firm Williams & Connolly in Washington, D.C., the possibility of selling the Viners' interest in Dove. In the fall of 1996, Norton Herrick proposed buying the Viners' entire interest in Dove. Attorney Povich assigned the matter to his partner, defendant Charles A. Sweet, a corporate transactional attorney. Sweet was not a member of the California Bar and was not familiar with California law. During the negotiations with Herrick, Sweet learned that under the Viners' employment agreements with Dove, the latter owed the Viners a substantial amount of unpaid dividends on their preferred stock. Sweet also learned that the Viners wanted to preserve their right to engage in the television and movie businesses.

When the negotiations with Herrick were unsuccessful, Ronald Lightstone of Media Equities International (MEI) approached the Viners. Thereafter, in March 1997, the Viners and MEI entered into an agreement under which MEI was to invest $4 million, and the Viners $2 million, to buy Dove stock. By May 1997, disputes arose, and the parties to the agreement each threatened litigation. That same month, Ronald Lightstone of MEI and Michael Viner, without defendant attorney Sweet's involvement, agreed that MEI would buy the Viners' stock in Dove and the Viners would terminate their employment with Dove.

Defendant attorney Sweet and Lightstone of MET negotiated the final agreement, which the parties signed on June 10, 1997. The deal consisted of a securities purchase agreement and an employment termination agreement. Under the former, MEI agreed to buy a significant portion of the Viners' stock for more than $3 million. Under the latter agreement, the Viners' employment with Dove was terminated, mutual general releases were given, and Dove was to pay the Viners a total of $1.5 million over five years in monthly payments, with Dove's series "E" preferred stock to be held in escrow for distribution to the Viners if Dove defaulted on the monthly payments to them.

The employment termination agreement contained a noncompetition provision stating that the Viners would not "`compete' in any way, directly or indirectly, in the audio book business for a period of four years" in any state in which Dove was doing business. The agreement also had a nonsolicitation provision that the Viners would not "directly or indirectly contract with, hire, solicit, encourage the departure of or in any manner engage or seek to employ any author or, for purposes of audio books, reader, currently under contract or included in the Company's book or audio catalogues for a period of four years."

In addition, the employment termination agreement provided that Deborah Raffin Viner would receive "Producer Credit" on audiobook work initiated during her employment with Dove; that Dove would not amend documents to terminate or reduce its obligation to indemnify the Viners; and that disputes would be submitted to arbitration, whose costs were to be split equally between the parties, with attorney fees to the party seeking to enforce the arbitration in court.

Defendant attorney Sweet led the Viners to believe that the employment termination agreement gave them three years of monthly payments by Dove, retained the indemnity protection they had with Dove, and provided credit for work done before their departure from Dove. The Viners also thought that they could use their celebrity contacts for any work that did not compete with Dove's audiobook business and involvement in film and television productions, and that if Dove defaulted on the agreed-upon monthly payments to them, the noncompetition clauses would be voided. The contracts did not so provide.

Later, several arbitration proceedings took place to resolve disputes between the Viners and MEI, including a claim by the Viners that the noncompetition provision of the employment termination agreement violated Business and Professions Code section 16600's restrictions on noncompetition agreements. The arbitrator rejected the claim, and the superior court confirmed the arbitrator's decision.

On June 3, 1998, the Viners brought a malpractice action against Attorney Sweet and the law firm of Williams & Connolly. Presented at trial were these seven claims: (1) Sweet told the Viners that the nonsolicitation clause of the employment termination agreement prohibiting plaintiffs from using their contacts to obtain work in television and movie projects applied only to the book and audiobook parts of Dove's business, but Dove, because the clause was ambiguous, asserted that the clause also encompassed Dove's television and movie projects; (2) Sweet negligently agreed to the noncompetition provision, which violated Business and Professions Code section 16600's restrictions on such provisions; (3) the Viners had asked for an attorney fees provision, but the employment termination agreement disallowed attorney fees in any disputes, permitting them only in enforcing an arbitration award; (4) ambiguous language in the Producer Credit provision caused Dove not to give Deborah Raffin Viner credit as a producer; (5) the Viners lost rights to dividends on Dove's series "A" preferred stock; (6) the employment termination agreement did not contain an indemnity provision providing the same level of protection as the Viners'...