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Cole v. Patricia A. Meyer & Associates APC, Cal. Ct. App. 2d Dist., No. B227712, 6/8/12
Key Holding: Attorneys who sign pleadings and play a “standby” trial counsel role cannot avoid liability for malicious prosecution simply by asserting that they did no work on the case because it was dismissed before their duties were triggered.
Significance: Malpractice defense experts tell BNA the ruling significantly increases plaintiffs' lawyers exposure to professional liability claims and could discourage them from bringing in noted trial attorneys on cases--a common practice in class actions.
An attorney who allows her name to appear on litigation pleadings despite agreeing not to work on the case unless it goes to trial cannot avoid liability for malicious prosecution simply by asserting that she did no work on the case before it was dismissed, the California Court of Appeal, Second District, decided June 8 (Cole v. Patricia A. Meyer & Associates APC, Cal. Ct. App. 2d Dist., No. B227712, 6/8/12).
The court noted that attorneys in different firms are permitted to associate with each other and “divide the duties of conducting a case.”
However, lawyers who “appear on all of the pleadings and papers filed for the plaintiffs in [an] underlying case cannot avoid liability for malicious prosecution merely by showing that they took a passive role in that case as standby counsel who would try the case in the event it went to trial,” Justice Norman L. Epstein wrote.
To avoid liability, Epstein added, secondary counsel can do two things: (1) “refrain from formally associating in [the case] until their role is triggered”; or (2) “refrain from lending their names to pleadings or motions about which they know next to nothing.”
Ronald E. Mallen, a professional liability expert with Hinshaw & Culbertson in San Francisco, called the ruling a “blockbuster decision” with potentially “far-ranging ramifications and implications.”
Mallen said that in certain types of cases--especially consumer or shareholder class actions--small plaintiffs' firms frequently bring in prominent trial lawyers who agree to take the case to a jury if it survives preliminary proceedings.
The court's ruling could discourage such arrangements, Mallen said, because it makes trial attorneys potentially liable for pretrial errors committed by other lawyers. Prominent standby counsel will not want “to pick up that exposure,” he told BNA.
Mallen said the decision “should create waves of concern for plaintiffs' lawyers.”
The court's opinion was issued in a high-profile malicious prosecution lawsuit that traces its origin to the years of the dot-com bust.
Christopher A. Cole, founder and former director of software giant Peregrine Systems, was sued in a class action that charged him and other Peregrine directors with securities fraud, insider trading, and other related claims.
The lawsuit was filed in 2003, one year after Peregrine's bankruptcy caused more than $4 billion in shareholder losses and triggered a string of federal prosecutions against corporate executives--but not Cole--for what the court described as “massive accounting fraud.”
The class action was brought on behalf of a group of Peregrine shareholders who allegedly lost $13 million.
Attorneys Patricia A. Meyer and Michael Aguirre filed the complaint. They enlisted Raymond P. Boucher and Robert P. Ottilie, two prominent trial attorneys, to take the case to trial if it reached that stage.
The lawsuit was dismissed on Cole's summary judgment motion in 2007, and the dismissal was affirmed on appeal. See Bains v. Moores, 91 Cal. Rptr.3d 309 (Cal. Ct. App. 2009). Shortly thereafter, Cole filed malicious prosecution and defamation claims against the four plaintiffs' attorneys.
All four lawyers sought to dismiss the claims under California's anti-SLAPP law, Cal. Civ. Proc. Code §425.16, which creates a special motion to strike a “strategic lawsuit against public participation” that has been filed against a person who has acted “in furtherance of the person's right of petition or free speech … in connection with a public issue.”
Meyer, Aguirre, Boucher, and Ottilie all filed motions to strike, arguing that Cole's lawsuit violated the anti-SLAPP statute. The court explained that Cole's claims could proceed if he made prima facie showings on all the elements of the malicious prosecution and defamation claims.
As to the malicious prosecution claims, Cole was required to show that the attorneys brought the class action “without probable cause” and that the allegations in the complaint were “made with malice,” Epstein said. Probable cause exists when a lawsuit is “based on facts reasonably believed to be true” and theories “legally tenable under the known facts,” the court explained.
The trial court dismissed Cole's cause of action for malicious prosecution against Boucher and Ottilie, but allowed Cole to proceed against Meyer and Aguirre.
The judge rejected the argument by Meyer and Aguirre that Cole's role as a corporate director, attendance at certain board meetings, and allegedly suspicious stock trading patterns provided sufficient probable cause to demonstrate that he knew about fraudulent accounting practices at Peregrine that were at the center of the shareholders' allegations.
However, the judge granted the motions to strike filed by Boucher and Ottilie, “based on their representation that they did not participate in Bains, having been associated in the case only for purposes of trial,” the court said.
The trial court also granted motions by Aguirre, Boucher, and Ottilie to strike the defamation claims against them, which were based on the assertion that the class action complaint against Cole was kept up on the Meyer firm's website long after the case had been dismissed. Cole did not appeal this aspect of the judge's ruling. (The appellate court held that the defamation claim against Meyer could proceed.)
On appeal, Meyer and Aguirre challenged the trial court's finding of a prima facie case that they instituted the class action against Cole without probable cause and with malice.
Cole appealed the judge's ruling as to Boucher and Ottilie. On appeal, the attorneys again asserted that “they cannot be liable for malicious prosecution because they did not take an active part in Bains and reasonably relied on [Meyer's and Aguirre's] decision to sue Cole,” Epstein said.
The appellate court upheld the trial court's orders as to Meyer and Aguirre but reversed its dismissal of Cole's claim for malicious prosecution against Boucher and Ottilie. All four malicious prosecution claims may go forward, the court ruled.
At this stage it appears that Meyer and Aguirre did not have probable cause for their claims against Cole, the court concluded. The attorneys pointed to numerous stock sales Cole completed as evidence of his knowledge of fraudulent practices and insider trading, but Epstein wrote that “while Cole's trading of stock was an easy target, defendants have been unable to pinpoint what makes it suspicious.”
The court further found that the trial court improperly granted the motions to strike filed by Boucher and Ottilie.
Epstein acknowledged the attorneys' claims that they had little involvement in the case because their duties as trial counsel were never triggered. Boucher “did not sign, draft, prepare, review, serve, approve, or discuss the contents of any pleadings” with Meyer or Aguirre, Epstein wrote, while Ottilie said he “discussed the case with Aguirre and saw a drafted complaint” but billed no time on the case.
However, the lawyers' passive roles did not absolve them of their responsibility to ensure that the complaint against Cole was factually and legally sound, the court ruled.
Boucher and Ottilie “apparently were listed as counsel for the plaintiffs on all filings in Bains,” Epstein noted. They also were served with all defense filings, he added, and there was “no evidence that [they] objected to service or notified the court or opposing counsel that they did not actually represent the Bains plaintiffs.”
Because of this “premature association” with the case, Epstein said, Boucher and Ottilie assumed a host of professional, statutory, and common law duties that required them to familiarize themselves with the claims, and preclude them from now disclaiming responsibility for the class action.
One such duty is the “obligation of diligent research,” Epstein wrote, which is grounded in California Rule of Professional Conduct 3-110(C). The lawyers also acquired a “responsibility to avoid frivolous or vexatious litigation” under civil procedure rules, he added, as well as a duty of care under the common law to avoid bringing a lawsuit without probable cause.
Accordingly, “Boucher [and] Ottilie cannot avoid liability for malicious prosecution by claiming to have been ignorant of the merits of the allegations made against Cole,” Epstein wrote.
Boucher and Ottilie could not plead ignorance as to the factual and legal infirmities in the Meyer attorneys' filings, the court ruled. Nor could they defend themselves by “contend[ing] that they relied in good faith on the Meyer defendants' investigation” of those claims, Epstein said. He explained:
California law generally allows an attorney of record to associate another attorney and to divide the duties of conducting the case. This does not mean, however, that an associated attorney whose name appears on all filings and who is served with all documents filed by the other side need not know anything about the case with which he or she is associated. Nor should an attorney whose name appears on all filings be able to avoid liability by intentionally failing to learn anything about a case that may turn out to have been maliciously prosecuted in whole or in part.
The court's order reinstating the malicious prosecution claims will be appealed, according to attorneys representing Boucher and Ottilie.
In interviews with BNA, those attorneys expressed confidence that the California Supreme Court will agree to review the case and reverse the ruling. Both attorneys took issue with the court of appeal's factual findings and legal determinations--but they were most alarmed, they said, by the policy implications of the ruling.
“I see policy errors and I see fact errors,” said Jonathan B. Cole of Nemecek & Cole, Sherman Oaks, Cal., who represented Boucher. “But fact errors are not going to get me to the supreme court. Policy errors are.”
Ottilie's attorney, James J. Kjar, similarly said, “It's going to be a policy argument.” Kjar is with Reback, McAndrews, Kjar, Warford & Stockalper, Manhattan Beach, Cal.
Mallen, who did not participate in this case, agreed that the policy implications make the case a good candidate for further appeal. “I would think the supreme court would be interested in reviewing the case,” he said.
Ottilie's attorney put it bluntly: “It's bad policy and bad precedent … to impose a duty on trial lawyers to review everything a 'workup' lawyer has done or to impose vicarious liability on them for any mistakes made in a case they're associating in on,” Kjar said. “It makes trial lawyers liable through osmosis for everything a 'workup' lawyer has done. It's unrealistic and it's unfair.”
The ruling heightens plaintiffs' lawyers' exposure to malpractice-related claims whenever they collaborate on a case, and it will dissuade such collaboration on cases where it is needed most to offset inherent resource disparities between litigants, Kjar stated.
Leighton M. Anderson of Bewley, Lassleben & Miller, Whittier, Cal., who represented Cole, said the court's ruling is not as unusual as his opponents seem to believe.
“All the opinion does is reaffirm what has always been the law: that an attorney has an obligation--to his client, to the court, and to his adversaries--to ensure that he has a minimal level of probable cause to support the claims, and the probable cause standard is not a particularly high standard,” Anderson said in comments to BNA.
“If you're not going to pay any attention to [a case] until it goes to trial, then don't associate with it as attorney of record on day one,” he remarked.
Anderson predicted that the supreme court will not take the defendants' appeal. “I don't think the Supreme Court touches this,” he said.
In his opinion for the court of appeal, Epstein stated that the “defendants argue that there is no evidence they associated with the [Cole] case for an improper purpose, such as to 'show more power.' But their premature association supports that inference.”
Counsel for Ottilie and Boucher both questioned the notion that a collaboration by lawyers to “show more power” might be ethically or legally improper.
Mallen too expressed scepticism about the court's implication. “There's no ethics rule I can think of under the ABA rules or under California's semi-unique rules that would prohibit that,” he said.
Kjar suggested that the court got it backwards. The ethical duty to advocate zealously on a client's behalf may actually require an attorney to enlist the services of a good trial lawyer to “show more power,” he said.
A good trial lawyer is a great equalizer, Kjar stated, and lining up talented standby counsel can be essential to securing a fair recovery from deep-pocketed defendants who are weighing settlements.
“That's how you get the other side's attention and get these cases resolved,” he told BNA. “By associating a well-known trial lawyer and notifying the other side that you have an experienced trial lawyer on board.”
Anderson, however, saw things differently. The other side, he said, is arguing that it's acceptable for an attorney to know nothing about a case but still associate on it, “and the only reason to be on the pleadings is to strike fear in the hearts of the defendants,” he commented.
“An attorney ought to know at least something about the merits of the case,” Anderson said. “It doesn't mean you have to go through with 18 boxes of discovery, it doesn't mean you have to interview every witness. You just need to know that there are some facts that establish probable cause,” he remarked.
In addition to Leighton Anderson, David A. Brady, also of Bewley, Lassleben & Miller, represented Cole.
Meyer and Aguirre were represented by Charles R. Grebing and Eric R. Deitz of Wingert Grebing Brubaker & Juskie in San Diego.
In addition to Jonathan Cole, Mark Schaeffer and Frances Ma, also of Nemecek & Cole, represented Boucher.
In addition to James Kjar, Albert E. Cressey III, also of Reback McAndrews, represented Ottilie.
By Samson Habte
Full text at http://op.bna.com/mopc.nsf/r?Open=kswn-8vlkw3.
Copyright 2012, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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