Jackson v. Rogers & Wells

Citations: 210 Cal. App. 3d 336; 258 Cal. Rptr. 454; 1989 Cal. App. LEXIS 446Docket: D007361

Court: California Court of Appeal; May 10, 1989; California; State Appellate Court

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Francis Jackson appeals a dismissal order after demurrers to his second amended complaint were upheld without leave to amend, and his punitive damages claim was stricken. Jackson argues that public policies against the assignment of legal malpractice and punitive damages claims should not apply, as he framed his assigned claims as fraud and intentional breach of contract, rather than attorney negligence. The court, however, found these distinctions unsupported and affirmed the dismissal.

The case originates from Jackson's earlier lawsuit (Jackson v. McKee) against Ronald J. Mix for legal malpractice and securities fraud. Mix's malpractice insurers, General Accident Insurance Company and Travelers Insurance Company (affiliated with Phoenix Insurance Company), retained Rogers, Wells, and partner Mitchell Lathrop for defense. Mix rejected multiple settlement offers from Jackson and lost at trial, resulting in a judgment exceeding $1 million against him. Following this, Jackson filed the current action against General and Phoenix on various bad faith insurance theories, which included claims against the attorneys for fraud, conspiracy, and emotional distress. 

General and Phoenix settled with Jackson, assigning him their claims against the attorneys, which included breach of contract and fraud. Jackson subsequently amended his complaint to remove General and Phoenix as defendants and to add claims against the attorneys based on the assignment. The attorney defendants successfully demurred to the extensive complaint, leading to the court striking evidentiary allegations and Jackson’s punitive damage claims without the option to amend. The court allowed amendments for all claims except for the breach of the implied covenant of good faith and fair dealing.

Jackson pursued fraud and breach of contract claims in his second amended complaint, alleging that the attorney defendants engaged in intentional misconduct to benefit their financial interests at the expense of the Plaintiffs' Assignors and Mix. He detailed how this misconduct delayed a reasonable settlement in the Jackson-Mix case, allowing the attorneys to accrue excessive fees. Specifically, it is alleged that Rogers, Wells, and others misrepresented evidence, understated Mix's potential liability, and performed unnecessary legal services to prolong litigation, ultimately enriching themselves. Jackson claims that this conduct prevented an earlier settlement at a lower amount than the eventual judgment. He justified the delayed discovery of fraud by referencing a 1986 malpractice suit filed by Mix against his former attorneys.

In response, the attorney defendants demurred and moved to strike the complaint, arguing that the claims were essentially legal malpractice, which is not assignable under California law. They also contended that the allegations failed to state sufficient facts for the causes of action and that certain claims were irrelevant. The court sustained the demurrers without leave to amend, finding that legal malpractice claims, regardless of whether they are based on negligence or intentional conduct, are not assignable. As a result, an order dismissing the action was entered, leading to an appeal.

The review of this dismissal acknowledges that all allegations in the complaint are accepted as true, assessing whether any pleading defects could be remedied through amendment. Jackson cited Civil Code section 954 to argue that the assignment of the fraud and breach of contract claims to him was valid, as such claims arise from violations of property rights or obligations.

Goodley v. Wank, Wank, Inc. establishes the nonassignability of legal malpractice claims, rooted in historical legislative changes to the common law. California Civil Code sections 953 and 954 allow for the transfer of choses in action, specifically those related to property rights or contractual obligations, marking assignability as the general rule and nonassignability as an exception. Nonassignable claims include those tied to personal injuries or purely personal wrongs, such as damage to reputation or feelings.

Legal malpractice claims, however, are complex as they embody both tort and contract elements. The California Supreme Court clarified this duality, noting that legal malpractice arises when an attorney fails to exercise the necessary skill and diligence, reflecting both a tortious breach and a breach of contract. In Goodley, the court determined that the nature of the legal malpractice claim was more akin to a personal contract due to the intimate attorney-client relationship. Public policy considerations aimed at preserving this fiduciary relationship led the court to conclude that allowing the assignment of such claims would undermine the confidentiality and personal nature of legal services.

The court expressed concerns that commodifying legal malpractice claims could foster a market for such claims, incentivizing unjustified lawsuits and increasing litigation against attorneys by parties without a direct relationship to them, ultimately compromising the integrity of the legal profession.

In Purdy v. Pacific Automobile Ins. Co. (1984), the California Court of Appeal addressed whether a legal malpractice claim could be assigned to a bankruptcy trustee. The court found the malpractice claim deficient due to a lack of proximate causation, leading it to avoid ruling on the assignment issue or commenting on the precedent set in Goodley. The prevailing view in various states also opposes the assignment of legal malpractice claims involving negligence or breach of contract. In contrast, some cases, like Oppel v. Empire Mutual Ins., permitted assignment under New York law. The Goodley decision remains unchallenged by California courts or the legislature since its issuance in 1976.

The court then evaluated the allegations in Jackson's second amended complaint to see if he could differentiate his situation from the general prohibition against assigning legal malpractice claims. It was noted that clients can pursue fraud claims against their attorneys, as fraud is distinct from legal malpractice. This distinction emphasizes that fraudulent conduct does not require specialized legal knowledge but rather basic honesty. The court referenced cases like Day v. Rosenthal, where a judgment for fraud against an attorney was upheld due to intentional misconduct, and Alton v. Rogers, which involved an attorney misappropriating client funds for personal use while concealing the act.

Fraud committed by an attorney against third parties does not afford the attorney any special status in claims alleging such misconduct. An attorney remains liable for actual fraud, regardless of their professional capacity. Generally, an attorney's duty of care is limited to their clients and intended beneficiaries, but this limitation does not apply to fraud claims. Clients of the attorneys in question, specifically the insurance carriers for Mix, could potentially pursue fraud claims based on the allegations in Jackson's second amended complaint. However, the assignability of such claims to third parties depends on key factors, notably the distinction between assignable fraud actions tied to specific property rights and those recognized as mere rights of action for fraud, which are not assignable. Historical case law indicates that actions involving a specific deprivation of property can be assigned, while those not linked to a specific property loss cannot. The alleged fraud by the attorneys involved manipulation of the insurance carriers through false representations and unnecessary legal services, all of which are rooted in the attorney-client relationship, indicating that these allegations are intrinsic to that relationship.

Allegations regarding the attorney's conduct, evidence representations, case evaluations, and resource allocation are identified as 'judgment calls' inherent to legal representation. Classifying these allegations as fraud rather than traditional malpractice would require a trial court to reconsider the attorney's professional judgments and strategic decisions made in a prior, confidential attorney-client relationship, which the current plaintiff opposed. This approach risks complicating legal malpractice litigation by introducing proof challenges. While the allegation of unnecessary services and corresponding charges is acknowledged, only the carrier-clients can raise this issue because such disputed billings are not comparable to a specific identifiable property necessary for fraud claims, as established in Jackson v. Deauville Holding Co. The fee dispute lacks an independent existence from the fraud claim and therefore cannot be assigned a legal identity for a separate cause of action.

Public policy considerations further support non-assignability of malpractice claims. The court in Goodley highlighted the personal nature of legal services and the confidentiality of the attorney-client relationship as key factors. Allowing assignability could undermine trust between attorneys and clients, deter vigorous advocacy, lead attorneys to prioritize employer interests over clients', and increase malpractice insurance premiums. In this case, Jackson, who previously sued insurance carriers for bad faith, settled and received a release from liability contingent on their transfer of rights against former attorneys, reinforcing the policy against assigning malpractice claims.

Carriers did not pursue legal action against the attorneys, raising questions about the merit of potential claims and their motivations, which may include leveraging unmeritorious claims as negotiation tools. Jackson's argument as an assignee of the carriers—that the attorneys should have settled his case sooner—suggests he is seeking to recover damages beyond his own judgment, essentially treating the malpractice claim as one that is not assignable. The core of Jackson's fraud claim is deemed to be legal malpractice, which is not assignable under current legal standards. Additionally, Jackson's challenges related to punitive damages and the assignment's legality were dismissed, as punitive damages are personal and non-assignable. The legal framework blurs the lines between tort and contract in legal malpractice cases, leading to the conclusion that Jackson's breach of contract claim is similarly barred. Finally, the assignment of legal malpractice claims was deemed illegal, consistent with existing case law.

The judgment of dismissal is affirmed, with concurrence from judges Wiener and Benke. Under Code of Civil Procedure section 581d, the dismissal is treated as a judgment for all purposes. Civil Code section 953 defines a "thing in action" as a right to recover through judicial proceedings. Since the 1976 Goodley decision, the role of lawyers has evolved, recognized by the Supreme Court in Bates v. State Bar of Arizona, which lifted advertising restrictions on attorneys, indicating a shift in perceptions of the legal profession. Despite these changes, fundamental professional obligations remain, including the duty of care and the principles of confidentiality and loyalty in the attorney-client relationship.

Champerty, defined as an agreement where a third party finances litigation in exchange for a share of the proceeds, is noted. The court in Troost v. Estate of DeBoer distinguished Goodley on the basis of the absence of attorney-client duties and confidentiality. In cases of alleged failure to settle, Purdy v. Pacific Automobile Ins. Co. indicated that attorneys cannot compel clients to settle, severing the causal link necessary for malpractice claims. Jackson's claims of fraud and breach of contract do not hinge on this point, but rather on the propriety of assignment.

The court does not resolve whether a fraud claim against an attorney, concerning specific identifiable property obtained through fraud, would be assignable to a third party. It also references Goldfisher v. Superior Court regarding the limitations on malpractice disputes between lawyers and clients. The Supreme Court's ruling in Moradi-Shalal v. Fireman's Fund Ins. Companies confirms the continuation of traditional claims against insurers, such as fraud. The court concludes that it need not address whether Jackson adequately pled elements of fraud, as the arguments focus on the terms of the retainer contract and the reasons for nonpayment of fees.