Commercial Standard Title Co. v. Superior Court , 155 Cal. Rptr. 393 ( 1979 )

Opinion

STANIFORTH, J.

Petitioners Commercial Standard Title Company, Inc., and First California Title Company of San Diego (the Title Companies) seek a writ of mandate directing the court below to allow them to file a cross-complaint for partial indemnity against Todd Smith, an attorney at law, in an action wherein the Title Companies, inter alia, are defendants and W. L. Lipscomb Engineering, Inc. (Lipscomb), Smith’s former client, is plaintiff. Lipscomb’s action seeks damages from the Title Companies for “fraudulently or negligently” preparing and issuing an incorrect “lot book” guaranty which Lipscomb relied upon to its damage. Lipscomb charges the lot book guaranty omitted a $750,000 trust deed of which the Title Companies had knowledge. Attorney Smith represented Lipscomb in the property exchange transactions wherein Lipscomb was given the defective lot book guaranty. The Title Companies, by their proposed cross-complaint, seek “indemnification” from Smith under principles announced in American Motorcycle Assn. v. Superior Court (20 Cal.3d 578 [146 Cal.Rptr. 182, 578 P.2d 899]) (AMA).

The trial court sustained Smith’s general demurrer to the Title Companies’ amended cross-complaint. This mandamus proceeding followed. This court has stayed the trial in the underlying action and directed Smith to show cause why the relief prayed for should not be granted.

Facts

The Title Companies allege (and we accept these allegations as true for the purposes of these proceedings) Attorney Smith represented Lipscomb in connection with the negotiations and consummation of a land exchange transaction between Lipscomb and Saratoga Development Corporation (Saratoga). An agreement was reached whereby Lipscomb would convey 9.3 acres (Quest parcel) to Saratoga and Saratoga would convey 9.3 acres (Scripps-Mesa parcel) to Lipscomb. Escrow instructions were prepared and submitted to Louisville Title Insurance Co. Saratoga’s agent represented to Attorney Smith that the Scripps-Mesa parcel was free and clear of all encumbrances and that the Title Companies had prepared a title report so indicating that pristine status. A representative of Saratoga delivered a “lot book” guaranty to Attorney Smith issued by the Title Companies and dated the morning the escrow was to close on the exchange of parcels.

The properties were exchanged without an escrow. Lipscomb received a parcel of property subject to a $750,000 trust deed for which it had not bargained.

The Title Companies charge Smith with negligently advising Lipscomb to proceed with the exchange of properties without first obtaining a policy of title insurance and in relying upon the representations of the Saratoga agent and the lot book guaranty. The lot book guaranty protection was limited to $100.

In sum the Title Companies would charge their current opponent’s former lawyer with legal malpractice in connection with the transaction, subject of the underlying lawsuit, and seek indemnification under AMA principles in proportion to the lawyer’s fault, for any judgment obtained by Lipscomb against the Title Companies.

Discussion

I

It was with “extreme reluctance” that this court stayed the proceeding below and authorized the use of the prerogative writ to review a ruling on pleadings. “However, upon occasion our attention is drawn to instances of such grave nature or of such significant legal impact that we feel compelled to intervene through the issuance of an extraordinaiy writ.” (Babb v. Superior Court, 3 Cal.3d 841, 851 [92 Cal.Rptr. 179, 479 P.2d 379].) Such a case is here. We are called upon to consider the effect of the rules announced in AMA upon the court’s denying a cross-complaint for comparative indemnity. Considering the novelty of the fact setting, the absolute lack of precedent, the number of cases to which it could apply, and the need to give the superior court guidance at the earliest possible time, we deemed the issue of sufficient legal impact to justify granting of the order to show cause.

II

American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d 578, is the claimed basis for a cause of action against Attorney Smith. We examine it with care. AMA involved an action for personal injuries brought against the sponsor of a motorcycle race by a youthful participant in the race. The sponsor (AMA) cross-complained for partial indemnity against the boy’s parents, charging their negligent supervision was a concurrent cause of the boy’s injuries.

After concluding “that a concurrent tortfeasor enjoys a common law right to obtain partial indemnification from other concurrent tortfeasors on a comparative fault basis,” the Supreme Court found that the governing provisions of the Code of Civil Procedure section 428.10 et seq. clearly authorize the sponsor to seek indemnification from a previously unnamed party through such a cross-complaint. (AMA, supra, at pp. 604-605.) The Supreme Court, accordingly, held the trial court’s decision to deny defendant leave to file its pleading to be in error.

In adopting the principle of partial indemnity between concurrent tortfeasors on a comparative fault basis, the Supreme Court modified the harsh all-or-nothing common law doctrine. This new doctrine followed upon, conformed to the objectives of Li v. Yellow Cab Co., 13 Cal.3d 804, 813 [119 Cal.Rptr. 858, 532 P.2d 1226, 78 A.L.R.3d 393], establishing “a system, under which liability for damage will be borne by those whose negligence caused it in direct proportion to their respective fault.” (Id., at p. 813.) Prior to Li, a negligent tortfeasor’s liability was ignored by the “draconian contributory negligence doctrine.” (AMA, supra, at p. 587.) Li examined and abandoned the “timeworn” contributory negligence rule. The Supreme Court in AMA stated:

“[T]he force of Li’s rationale applies equally to the allocation of responsibility between two or more negligent defendants and requires a modification of this state’s traditional all-or-nothing common law equitable indemnity doctrine. Again, we concur with Dean Prosser’s observation in a related context that ‘[t]here is obvious lack of sense and justice in a rule which permits the entire burden of a loss, for which two defendants were . . . unintentionally responsible, to be shouldered onto one alone, . . . while the latter goes scot free.’ [Citation.] From the crude all- or-nothing rule of traditional indemnity doctrine, and the similarly inflexible per capita division of the narrowly circumscribed contribution statute, we have progressed to the more refined stage of permitting the jury to apportion liability in accordance with the tortfeasors’ comparative fault.

“Accordingly, we hold that under the common law equitable indemnity doctrine a concurrent tortfeasor may obtain partial indemnity from cotortfeasors on a comparative fault basis.” (AMA, supra, at pp. 607-608.)

III

AMA, however, does not purport to make a rule for all seasons. It applies only to “appropriate” cases. The precise language of AMA is: “The long-recognized common law equitable indemnity doctrine should be modified to permit, in appropriate cases, a right of partial indemnity, under which liability among multiple tortfeasors may be apportioned on a comparative negligence basis.” (AMA, supra, at p. 583.) And while concluding “that under the governing statutory provisions a defendant is generally authorized to file a cross-complaint against a concurrent tortfeasor for partial indemnity on a comparative fault basis, even when such concurrent tortfeasor has not been named a defendant in the original complaint” (AMA, supra, at p. 607), a footnote points out:

“There are, of course, a number of significant exceptions to this general rule. For example, when an employee is injured in the scope of his employment, Labor Code section 3864 would normally preclude a third party tortfeasor from obtaining indemnification from the employer, even if the employer’s negligence was a concurrent cause of the injury. [Citations.]

“Similarly, as we have noted above such a partial indemnification claim cannot properly be brought against a concurrent tortfeasor who has entered a good faith settlement with the plaintiff, because permitting such a cross-complaint would obviously undermine the explicit statutory policy to encourage settlements reflected by the provisions of section 877 of the Code of Civil Procedure. . . .” (AMA, supra, at p. 607, fn. 9.)

And in Rodriguez v. McDonnell Douglas Corp., 87 Cal.App.3d 626, 676 [151 Cal.Rptr. 399], the appeal court set forth yet another variant: “In adopting a principle of partial indemnity between concurrent tortfeasors on a comparative fault basis, American Motorcycle was modifying the all-or-nothing common law doctrine of equitable indemnity. As the court explained in Peters v. City & County of San Francisco . . . , ‘a right of indemnification may arise as a result of contract or equitable considerations . . . .’ (Italics added.) None of the discussion in American Motorcycle leads to the slightest suggestion that the court was addressing itself to the all-or-nothing right of indemnification that is created by the parties to an indemnity contract.”

And in Held v. Arant, 61 Cal.App.3d 748, 750 [134 Cal.Rptr. 422], the court stated (pxe-AMA):¹ “Because reasons of policy peculiar to the tripartite relationship of attorney-client-adversary override the principle of equitable indemnity enunciated in cases such as Herrero v. Atkinson . . . and Niles v. City of San Rafael. . ., we conclude that the first lawyer has no right of indemnity from the second.”

Thus, AMA makes not a rule of general application but a rule riddled with exceptions. Partial indemnity is permitted only in appropriate cases. It is with this precise holding and the rationale underpinning AMA in mind that the facts, the circumstances of this case must be viewed. We need only to count the gross differences, factual, legal, equitable, and of public policy, to distinguish, to make the AMA rule inapposite.

IV

We examine first the factual matrix of this cross-complaint. A charged wrongdoer seeks to compel his victim’s lawyer to shoulder a portion of the damages on the premise the lawyer, guilty of malpractice in advising his former client, is a joint tortfeasor joinable, required to contribute under AMA principles.

In discussing the liability of a joint tortfeasor, AMA (p. 588) points out “a concurrent tortfeasor is liable for the whole of an indivisible injury whenever his negligence is a proximate cause of that injury.” Thus the liability for a wrongful act attaches for all the damages ensuing from the wrong regardless of the degree of participation by the tortfeasor in that wrong. (Tuman v. Brown, 59 Cal.App.2d 16, 25 [138 P.2d 363]; Hughey v. Candoli, 159 Cal.App.2d 231, 240 [323 P.2d 779]; Dawson v. Schloss, 93 Cal. 194 [29 P. 31]; Prosser, Law of Torts (4th ed.) pp. 291, 293, 297-298; 14 Cal.Jur.3d, Contribution and Indemnification, § 73, p. 740.)

This essential characteristic of a joint tortfeasor is not shared by the attorney charged with legal malpractice with respect to a client.

The lawyer’s duty to his client arises from his contractual obligation as well as ethical demands. When a lawyer negligently advises his client, a violation of his duty occurs. The resultant legal malpractice constitutes both a tort and breach of contract. (Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6 Cal.3d 176, 181 [98 Cal.Rptr. 837, 491 P.2d 421].) However, for an actionable legal liability of the lawyer to his client to arise further elements must be present.

As set out in Budd v. Nixen, 6 Cal.3d 195, 200 [98 Cal.Rptr. 849, 491 P.2d 433], the elements of legal malpractice, like those of any other action for negligence, are:

“(1) the duty of the professional to use such skill, prudence, and diligence as other members of his profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the negligent conduct and the resulting injury; and (4) actual loss or damage resulting from the professional’s negligence. [Citations.]

“If the allegedly negligent conduct does not cause damage, it generates no cause of action in tort. [Citation.] The mere breach of a professional duty, causing only nominal damages, speculative harm, or the threat of future harm—not yet realized—does not suffice to create a cause of action for negligence. [Citations.] Hence, until the client suffers appreciable harm as a consequence of his attorney’s negligence, the client cannot establish a cause of action for malpractice. ” (Italics added.)

It is black letter law that damages—“appreciable harm”—may not be based on speculation or surmise; mere possibility or even probability that damage will result from wrongful conduct does not render it actionable. (Ventura County Humane Society v. Holloway, 40 Cal.App.3d 897, 907 [115 Cal.Rptr. 464].) Thus until Lipscomb’s action against the Title Companies evidences damages actually sustained, no cause of action exists for the lawyer’s misadvice. If Lipscomb recovers from Title Companies, despite negligence of the lawyer, such amount would reduce “the damages proximately resulting from respondents’ [lawyers’] negligence.” (Theobald v. Byers, 193 Cal.App.2d 147, 153 [13 Cal.Rptr. 864]; Kirtland & Packard v. Superior Court, 59 Cal.App.3d 140 [131 Cal.Rptr. 418].) Furthermore, if we assume again that lawyer negligence has been established, the defense of the client’s contributory negligence may properly be raised. The attorney may show that the client has disregarded the legal advice given by the attorney. (Theobald v. Byers, supra, at p. 150; Ishmael v. Millington, 241 Cal.App.2d 520, 530 [50 Cal.Rptr. 592]; 7 Cal.Jur.3d, Attorneys at Law, § 283, p. 621.)

In light of the foregoing well-established rules, the language of McGregor v. Wright, 117 Cal.App. 186, 196 [3 P.2d 624], becomes clothed with legal rectitude. “Under the laws of negligence, it became necessary for plaintiff to prove, not merely that his action upon the advice of the defendants contributed to his removal, but it must be established that the reliance upon erroneous advice was the sole and proximate cause of such removal and the loss sustained. [Citation.] It is likewise established that before a client can recover for alleged negligence of his attorneys he must establish that any loss suffered was caused solely by the negligence of the attorney. [Citations.]”

By definition, joint tortfeasors are jointly and severally liable for the entire damage proximately resulting. (14 Cal.Jur.3d, Contribution and Indemnifications, § 73, p. 740, and cases cited.)

The negligent lawyer simply does not fit into the true joint tortfeasor status present in AMA or Safeway Stores, Inc. v. Nest-Kart, 21 Cal.3d 322 [146 Cal.Rptr. 550, 579 P.2d 441], for he is not responsible for the entire damage when he is joined as a joint tortfeasor with his client’s legal opponent.

V

A second set of circumstances distinguishes this case, removes it from the penumbral effect of AMA. Ordinarily independent tortfeasors who do not act in concert are not jointly liable even though their acts have united to produce one injury. (Miller v. Highland Ditch Co., 87 Cal. 430, 431 [25 P. 550]; Griffith v. Kerrigan, 109 Cal.App.2d 637, 640 [241 P.2d 296].) Each is responsible only for the part of the damage resulting from his own acts. (Slater v. Pacific American Oil Co., 212 Cal. 648, 651-652 [300 P. 31]; Summers v. Tice, 33 Cal.2d 80, 87 [199 P.2d 1, 5 A.L.R.2d 91].)

As discussed above, the negligent lawyer’s liability proceeds from a totally different source, factually and legally, from that of his client’s opponent. The lawyer certainly does not act in “concert” with the opposition to produce the injuries to his client. Elis wrong arises from the failure to exercise the reasonable lawyer skill in performance of his task. (Lucas v. Hamm, 56 Cal.2d 583, 591 [15 Cal.Rptr. 821, 364 P.2d 685].) The Title Companies are charged with negligent misrepresentation in connection with a lot book guaranty. These are independent wrongs. They do not arise from violation of a common duty as in American Motorcycle or Safeway v. Nest-Kart. Each of these independent wrongdoers is responsible for only his own damage. (14 Cal.Jur.3d, Contribution and Indemnity, § 73, p. 741.)

Therefore, when we examine this particular fact matrix through the eyes of the legal technician, it may be reasonably concluded the acts of Title Companies are in the nature of an independent intervening cause. (See Zalta v. Billips, 81 Cal.App.3d 183, 191 [144 Cal.Rptr. 888].) The lawyer’s damage responsibility ended—as a matter of law—where the negligence of Title Companies began. The negligence of Title Companies operated factually independent of the lawyer neglect to cause damage. It cut the causal connection between lawyer negligence and his client’s damage. (Werkman v. Howard Zink Corp., 97 Cal.App.2d 418 [218 P.2d 43].) If the act of the third party is not reasonably foreseeable, not a normal consequence in the situation, it is a superseding cause. (Schrimscher v. Bryson, 58 Cal.App.3d 660 [130 Cal.Rptr. 125]; Jimison v. United States, 267 F.Supp. 674, 678; Ewart v. Southern Cal. Gas Co., 237 Cal.App.2d 163 [46 Cal.Rptr. 631].)

But enough of these technical perseverations. We turn now to the most disturbing aspect of the Title Companies’ pleadings. The Title Companies are charged wrongdoers. They seek to sue their victim’s former lawyer, charging him in effect with negligence in failing to disbelieve the Title Companies, to intuit third parties’ wrongdoings.

The public policy, the equitable considerations underpinning Li v. Yellow Cab, supra, and AMA, do not fit, do not stretch so far as to cover this specie of relationship. Authorizing suit against the lawyer could cause these immediate repercussions.

In the first place, if the lawyer is to be joined, then his former client, the plaintiff, can be properly cross-sued on a contributory neglect concept. (Theobald v. Byers, supra, 193 Cal.App.2d 147.) And if plaintiff’s attorney, or former attorney, can be sued by defendant on a theory of negligent advice to his client causing damage, then too in fairness, defendant’s lawyer on the same legal theory—negligent advice to his client causing contingent damage—could be brought in on the same flying carpet of legal unreality.

But to return to solid legal firmament, reasons of public policy peculiar to the attorney-client relationship vis-á-vis an adversary make the application of equitable indemnity principles enunciated in American Motorcycle untenable. The lawyer has the duty of undivided loyalty. He may not acquire an adverse interest to his client. He should not be forced to choose between conflicting interests. The attorney is under an obligation to preserve the secrets of his client “at every peril to himself.” (Bus. & Prof. Code, § 6068, subd. (e).) This duty is owed both present and former clients. (ABA Code of Prof. Responsibility, EC 4-6). Only the client can release the attorney from the obligation. (Earl Scheib, Inc. v. Superior Court, 253 Cal.App.2d 703 [61 Cal.Rptr. 386].) It is the policy of the court to encourage confidence and to preserve inviolate this relationship of client-lawyer. (In re Ochse, 38 Cal.2d 230 [238 P.2d 561].)

This limited review of but a few of the ethical, public policy considerations affecting the lawyer-client relationship must be placed in the context of authorization of cross-suit in this action against the former attorney. If suit were to be permitted against the current acting attorney for plaintiff, such rule would effectively allow a defendant to require plaintiff’s now-sued attorney for multiple reasons to recuse himself. The present or past attorney has his mouth sealed—he must preserve his client’s secrets inviolate at all peril to himself. Further, the chilling effect of such a threat of suit by a potential or actual adversary—for negligent advice to the client—is ever present. The lawyer’s duty in re full and frank discussion and disclosure could not help but be affected by this overhanging threat of a lawsuit brought by a person about whom the lawyer is advising his client. There is inherent in proposed extension of the AMA rule the seeds of irresponsible cross-lawsuits motivated by naught but spite and a desire to spread confusion, dissention in the opponent’s camp. As was said in Held v. Arant, supra, 61 Cal.App.3d 748, 752:

“Where, however, an attorney is retained to represent the interests of his client against persons who are actual or potential adversaries, the possibility that one of those adversaries may seek indemnity from the attorney if he is held liable to the client can impinge upon the undivided loyalty owed by counsel.

“. . . MM&H [the lawyers] owed an undivided loyalty to Held to use its best judgment to extricate him from the situation created by Arant’s advice. Extrication involved consideration both of resistance of the claim of Nova-Tech and of the assertion of an affirmative claim against Arant. MM&H’s ability to choose between courses of conduct best designed to protect the interests of its client cannot be inhibited by the proposition that if it chooses the course of resistance of the claim it will be immune from liability to the one adversary absent malicious prosecution [citation] while if it chooses the course of prosecuting the client’s claim for malpractice against a prior attorney it may be subject to a claim to indemnify that attorney.”

The Supreme Court reasoned in Goodman v. Kennedy, 18 Cal.3d 335, 344 [134 Cal.Rptr. 375, 556 P.2d 737]: “To 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 or concern 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. [Citation.]” (Fn. omitted.) (See also Norton v. Hines, 49 Cal.App.3d 917, 923 [123 Cal.Rptr. 237]; DeLuca v. Whatley, 42 Cal.App.3d 574, 576 [117 Cal.Rptr. 63].)

We are bound by such pertinent reasoning and conclusions.

Judgment affirmed.

Wiener, J., concurred.

1 This self-same appeal court, before writing Held v. Arant, supra, authored a prescient decision in AMA v. Superior Court. The subsequent Supreme Court decision in AMA, supra, parallels the superseded appellate decision in reasoning and result.