Zevnik v. Superior Court

• Decision Date: 18 January 2008
• Docket Number: No. B201105.,B201105.
• Citation: 70 Cal.Rptr.3d 817,159 Cal.App.4th 76
• Court: California Court of Appeals Court of Appeals
• Parties: Paul Anton ZEVNIK et al., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Rayonier Inc. et al., Real Parties In Interest.

70 Cal.Rptr.3d 817

159 Cal.App.4th 76

Paul Anton ZEVNIK et al., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Rayonier Inc. et al., Real Parties In Interest.

No. B201105.

Court of Appeal, Second District, Division 3.

January 18, 2008.

Gibson, Dunn & Crutcher, James P. Fogelman, Sarah R. Wetzstein, Los Angeles, and J. Christopher Jennings, for Petitioners.

No appearance for Respondent.

Pillsbury Winthrop Shar Pittman, Robert L. Wallan, John M. Grenfell, Kimberly L. Buffington and Gevik M. Baghdassarian, Los Angeles, for Real Parties In Interest.

CROSKEY, J.

Paul Anton Zevnik, Michel Y. Horton, Morgan Lewis and Bockius LLP (MLB), and Zevnik Horton LLP (collectively Petitioners) are defendants in a legal malpractice action brought by their former clients Rayonier Inc. (Rayonier) and Southern Wood Piedmont Company (Southern Wood). The alleged malpractice arises from Petitioners' concurrent representation of Rayonier, Southern Wood, ITT Industries, Inc. (ITT), and ITT Fluid Technology Corporation (ITT Fluid) as coplaintiffs in an insurance coverage action. Rayonier and Southern Wood moved to disqualify Petitioners as counsel for ITT and ITT Fluid in the insurance coverage action based on alleged conflicts of interest and violations of professional responsibilities. The trial court denied the motion based on both the merits and on laches. We affirmed the denial based on laches, and did not reach the merits. Petitioners then moved in this malpractice action to determine the collateral estoppel effect of our opinion in the insurance coverage action, arguing that facts determined by the trial court in the insurance coverage action with respect to the merits of the disqualification motion are conclusively established for purposes of this malpractice action. The trial court denied the motion. Petitioners filed a petition for writ of mandate or prohibition in this court, challenging the denial.

We conclude that the governing rule of law is that if a trial court relies on alternative grounds to support its decision and an appellate court affirms the decision based on fewer than all of those grounds, only the grounds relied on by the appellate court can establish collateral estoppel. In so holding, we agree with the rule of law stated in Newport Beach Country Club, Inc. v. Founding Members of Newport Beach Country Club (2006) 140 Cal. App.4th 1120, 45 Cal.Rptr.3d 207 (Newport Beach) and Butcher v. Truck Ins. Exchange (2000) 77 Cal.App.4th 1442, 92 Cal. Rptr.2d 521 (Butcher). We conclude that People v. Skidmore (1865) 27 Cal. 287 (Skidmore), which has been cited in support of a contrary rule, is not on point and should not be extended to apply in these circumstances.

FACTUAL AND PROCEDURAL BACKGROUND

Rayonier, Southern Wood, ITT, and ITT Fluid are coplaintiffs in an insurance coverage action that was commenced in September 1991. Petitioners represented the plaintiffs jointly pursuant to the terms of a written agreement. Disputes arose between Rayonier and Southern Wood on one side and ITT and ITT Fluid on the other concerning the division of settlement proceeds. They participated in an arbitration of those disputes in the State of New York, resulting in an award issued in May 2005. A federal court in New York confirmed the arbitration award.

Rayonier and Southern Wood filed a complaint against Petitioners in the United States District Court for the Central District of California in August 2005, alleging professional negligence and breaches of fiduciary duty arising from Petitioners' representation of the plaintiffs in the insurance coverage action. Rayonier and Southern Wood alleged that Petitioners had favored the interests of ITT and ITT Fluid over the interests of Rayonier and Southern Wood, and that Petitioners had violated State Bar Rules of Professional Conduct. Petitioners promptly moved to be relieved as counsel for Rayonier and Southern Wood in the insurance coverage action. Rayonier and Southern Wood then moved to disqualify Petitioners as counsel for ITT and ITT Fluid in the insurance coverage action.

Rayonier and Southern Wood voluntarily dismissed the federal action and filed their complaint in the present action in September 2005, alleging counts for breach of fiduciary duty, unjust enrichment, breach of contract, and negligence. The counts all arise from Petitioners' concurrent representation of Rayonier and Southern Wood together with ITT and ITT Fluid as coplaintiffs in the insurance coverage litigation.

The trial court in the insurance coverage action granted Petitioners' motion to be relieved as counsel for Rayonier and Southern Wood and denied the motion by Rayonier and Southern Wood to disqualify Petitioners as counsel for ITT and ITT Fluid. The court in a written order evaluated the merits of the disqualification motion and concluded that Rayonier and Southern Wood had failed to establish a basis for disqualification. The court also concluded that Rayonier and Southern Wood had delayed unreasonably in bringing the motion and that the motion therefore was barred by laches.

We affirmed the denial of the motion to disqualify based on laches alone and expressly declined to reach the parties' contentions concerning other grounds asserted by the trial court in support of its ruling. (ITT Industries, Inc. v. Pacific Employers Ins. Co. (Jan. 29, 2007, B187238) [nonpub. opn.] [p. 29], 2007 WL 214295.) We concluded that substantial evidence supported the factual findings made by the trial court in connection with its finding of laches. (Id. at p. 27.) We also stated, "That Rayonier and Southern Wood only first learned in 2004 of a specific purported breach of the duty of loyalty by counsel may be relevant for purposes of their malpractice action against the attorneys, but that fact is not relevant to nor does it excuse their delay in moving to disqualify counsel." (Id. at pp. 28-29.)

Petitioners filed a Motion for Determination of Collateral Estoppel Effect of Court of Appeal's Decision Affirming Denial of Rayonier's Motion to Disqualify Defendants in this action in March 2007. They argued that facts determined by the trial court in the order denying the motion to disqualify counsel in the insurance coverage action were conclusively established, and that those facts precluded any finding that they had breached a duty owed to Rayonier and Southern Wood and defeated each of the counts alleged in this action. They also argued that by quoting part of the order denying the motion to disqualify in our opinion, we impliedly endorsed and affirmed the factual findings contained therein.¹

The trial court stated at the hearing on the motion that, as a matter of law, only the finding on which we based our decision—laches—could have collateral estoppel effect. The court also suggested that the disqualification motion and the present action did not involve the same issue because disqualification ultimately turns on considerations different from those that determine whether the lawyer failed to comply with the standard of care. The court denied the motion orally at the hearing and entertained Petitioners' suggestion to identify issues for proposed interlocutory review (Code Civ. Proc., § 166.1). On June 15, 2007, the court filed an order prepared by Petitioners denying the motion. The order identifies two issues for proposed interlocutory review, including (1) whether issues decided on a motion to disqualify counsel can be collateral estoppel in a malpractice action; and (2) whether collateral estoppel applies to each alternative ground supporting a trial court decision in these circumstances, or only to the ground on which the appellate court based its affirmance.²

Petitioners filed a petition for writ of mandate or prohibition in this court and requested an immediate stay of discovery. We stayed discovery and issued an order to show cause.

CONTENTIONS

Petitioners contend if an appellate court affirms a trial court decision based on one of two alternative grounds relied on by the trial court, all of the issues decided by the trial court in connection with either ground of decision are conclusively established and binding as collateral estoppel. Petitioners also challenge the trial court's ruling on other grounds that we need not address.

DISCUSSION

"Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them. Collateral estoppel, or issue preclusion, `precludes relitigation of issues argued and decided in prior proceedings.' [Citation.]" (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896, 123 Cal. Rptr.2d 432, 51 P.3d 297.)³ Res judicata precludes the relitigation of a cause of action only if (1) the decision in the prior proceeding is final and on the merits; (2) the present action is on the same cause of action as the prior proceeding; and (3) the parties in the present action or parties in privity with them were parties to the prior proceeding. (Busick v. Workmen's Comp. Appeals Bd. (1972) 7 Cal.3d 967, 974, 104 Cal.Rptr. 42, 500 P.2d 1386.) Res judicata bars the litigation not only of issues that were actually litigated in the prior proceeding, but also issues that could have been litigated in that proceeding. (Id. at p. 975, 104 Cal.Rptr. 42, 500 P.2d 1386.)

Collateral estoppel precludes the relitigation of an issue only if (1) the issue is identical to an issue decided in a prior proceeding; (2) the issue was actually litigated; (3) the issue was necessarily decided; (4) the decision in the prior proceeding is final and on the merits; and (5) the party against whom collateral estoppel is asserted was a party to the prior proceeding or in privity with a party to the prior proceeding. (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341, 272 Cal.Rptr. 767, 795 P.2d 1223.) Even if the minimal requirements for application of collateral estoppel are satisfied, courts will...