Rickey v. Lally CA4/3 ( 2014 )

Filed 12/23/14 Rickey v. Lally CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
JEANNE RICKEY,
Plaintiff and Appellant, G049507
v. (Super. Ct. No. 30-2012-00585070)
DAVID LALLY, OPINION
Defendant and Respondent.
Appeal from a judgment of the Superior Court of Orange County, Gail
Andrea Andler, Judge. Affirmed.
Law Offices of Michelle D. Strickland and Michelle D. Strickland for
Plaintiff and Appellant.
Ng Do-Khanh, Daniel Do-Khanh and Anthony Cartee for Defendant and
Respondent.
* * *
In December 2007, Jeanne Rickey retained Attorney David Lally to
perform legal services on her behalf in regard to the bankruptcy of one of her debtors,
contractor James Reed. The retainer agreement was quite explicit; Lally was hired only
to handle “the Plan Objections in the Chapter 13 case of James Reed.” The agreement, in
fact, specifically said that if Rickey wanted additional work, a separate written agreement
would be required.1
More than four years later, in July 2012, Rickey sued Lally for legal
malpractice. The complaint admitted Lally had indeed, as the retainer agreement
contemplated, filed an objection to Reed’s bankruptcy plan. It also admitted Lally had
also filed a $12,500 proof of claim against Reed based on an arbitration award in
Rickey’s favor. However, it alleged two omissions on Lally’s part: Lally had failed to
file a non-dischargeability complaint against Reed in the bankruptcy court, and he had
failed to file an amended claim against him based on the “latent defects” inflicted on
Rickey’s house in the course of a remodeling job for which Reed was responsible.
Rickey’s theory was that Reed could be held liable for latent defects beyond the initial
$12,500 arbitration award, hence there was a need for an amended claim.
Rickey further alleged that after Reed’s bankruptcy was dismissed in
August 2009, Lally advised her she could “enforce her judgment” against Reed, which
somehow caused her to believe, incorrectly, she had a judgment she could enforce against
him rather than an arbitration award. (There is no question she had an arbitration award,
as distinct from a formal judgment.) And she alleged Lally should have informed her she
needed to separately prosecute Reed in state court on the latent defects matter, and as a
1 The exact language from the retainer agreement was: “Thank you for providing David Brian Lally
(the ‘Firm’) with the opportunity to provide legal services to you. We have agreed the Firm will provide legal
services only with respect to handling the Plan Objections in the Chapter 13 case of James Reed. If you desire the
Firm to handle additional legal matters, a separate, written agreement will be required.” (Italics added.)
2
result of not being so informed, the statute of limitations ran on various tort causes of
action she had against Reed.
The case was tried to the court, which, after a full trial, rendered judgment
for Lally. The “essential” – the trial judge’s word – reason for the defense verdict was
that Rickey did not present any expert testimony to establish Lally had violated some
duty of care in the advice he gave Rickey or in his failure to file a non-dischargeability
complaint or amended claim.
Rickey now appeals from the judgment, focusing on Lally’s alleged
statement that Rickey could pursue her “judgment” against Reed. Lally admitted at the
trial that he had indeed used the word “judgment” in an email telling Rickey that she
could pursue Reed in the aftermath of the dismissal of his bankruptcy case.
The general rule, of course, is that expert evidence is a prerequisite to
establish a case of legal malpractice. (Unigard Ins. Group v. O’Flaherty & Belgum
(1995) 38 Cal. App. 4th 1229, 1239 [“In negligence cases arising from the rendering of
professional services, as a general rule the standard of care against which the
professional’s acts are measured remains a matter peculiarly within the knowledge of
experts.”]; Wilkinson v. Rives (1981) 116 Cal. App. 3d 641, 648 [“Since there was no such
expert testimony, there is no evidence from which the trier of fact could have found
negligence on the part of respondent Rives.”].) The need for expert testimony has
particular force where the attorney, as here, holds himself or herself out as a specialist:
“Where, however, the malpractice action is brought against an attorney holding himself
out as a legal specialist and the claim against him is related to his expertise as such, then
only a person knowledgeable in the specialty can define the applicable duty of care and
opine whether it was met.” (Wright v. Williams (1975) 47 Cal. App. 3d 802, 810-811.)
There is an exception, however, to the general rule, namely for malpractice
that is so bad – that is, so obvious – that expert testimony is not needed. Goebel v.
Lauderdale (1989) 214 Cal. App. 3d 1502 is the lead case embodying this exception, and,
3
naturally, is the case mainly relied on by Rickey here. There, a bankruptcy attorney – but
one who, nonetheless, still “handle[d] other legal matters” – specifically and
affirmatively advised a contractor to collect $15,000 from a job on which he was working
even though he himself owed the laborers and material suppliers, and then stop work on
the project. The contractor followed the advice and within about a month filed for
bankruptcy. (Id. at p. 1505.) But there was a big problem with the attorney’s advice. A
California Penal Code section makes a contractor’s diversion of funds from completing a
job a felony. (Ibid., citing Pen. Code, § 484b.) When the contractor was subsequently
prosecuted for having acted on the bankruptcy attorney’s direct advice, the contractor
sued the bankruptcy attorney for legal malpractice. While the contractor did have an
expert testify at trial against the bankruptcy attorney, that expert was not expert in
bankruptcy, and could only testify about attorneys in general. (Id. at p. 1506.) The case
ended in a nonsuit in favor of the defendant. In reversing the judgment, the appellate
court said that the bankruptcy attorney’s malpractice was so clear no expert was needed.
The court in fact used the “so clear” phrase twice in two successive paragraphs: once in
quoting from Wilkinson v. Rives, supra, 116 Cal.App.3d at pages 647-648, and once in
delivering its holding (that time without quotation marks). (Goebel, supra, 214
Cal.App.3d at p. 1508.)2
What also emerges from reading the Goebel opinion is that the substance of
the bankruptcy attorney’s egregiously bad advice was not only decisive in the court’s
decision to reverse the nonsuit, but profoundly offended the appellate court: “Quite
simply, respondent advised his client to break the law. We see no problem in concluding
that, as a matter of law, such conduct markedly departs from the skill and diligence
attorneys commonly possess.” (Goebel, supra, 214 Cal.App.3d at p. 1509, italics added.)
2 The Goebel court also framed its test as one of ready apparency, i.e., obviousness. (Goebel,
supra, 214 Cal.App.3d at p. 1508 [only where “the attorney’s negligence is readily apparent from the facts of the
case,” is expert testimony unnecessary].)
4
The same element of attorney misconduct was similarly present in other no-expert-
testimony-needed cases, such as David Welch Co. v. Erskine & Tulley (1988) 203
Cal. App. 3d 884 [attorney breach of fiduciary duty] and Betts v. Allstate Ins. Co. (1984)
154 Cal. App. 3d 688 [attorney disloyalty to client].)
A variation on the “so clear” theme from Goebel is the total-absence-of-
research on issues clearly bearing on the scope of the attorney’s retention, as exemplified
in Stanley v. Richmond (1995) 35 Cal. App. 4th 1070. Ironically, that case also involved a
bankruptcy attorney, but one who ended up being the plaintiff and appellant in the
subsequent legal malpractice case. In Stanley, a bankruptcy attorney was going through a
divorce with her doctor-husband, who had a VA pension. She also was herself the
recipient of a partnership withdrawal buy-out from her previous law firm. (Id. at p.
1083.) Her family law attorney advised her to cede her entire interest in the VA pension
as a way to help her stay in her house, despite the fact that even keeping a mere $1
interest in it would have made her eligible for lifetime health insurance at “very low
cost.” (Ibid.) Further, the family law attorney made no provision for the “immediate and
specific” tax consequences of the law partnership buyout. (Id. at p. 1095.) While there
was no expert testimony specifically addressing these matters, the appellate court
reversed a trial court nonsuit in their regard. As to the VA pension, the court said just a
“few hours” of legal research (or less) would have revealed the existence of a federal
regulation allowing her to keep “valuable benefits” if she had maintained even the $1
interest. (Id. at p. 1094.) As to the tax liability for the partnership buyout, the court said
the lack of research, “coupled” with evidence the family law attorney was “unnecessarily
rushing” to finalize a settlement, was enough for the wife’s claim to survive the absence
of expert testimony. (Id. at p. 1095.)
In the case before us, however, neither the Goebel “so clear” nor the
Stanley “total absence of research” test helps Rickey. What is particularly important in
this case is the limited scope of Lally’s legal work for Rickey, spelled out with great
5
clarity in the retainer agreement, coupled with the technical bankruptcy context of Lally’s
alleged goofs.
Stanley is clearly inapposite to the case at hand. In Stanley the family law
attorney’s malfeasances involved not doing any research into two discrete matters – a
government pension plan that came with health benefits, and a partnership buyout. Each
of these matters bore directly on the division of community, and if a family law attorney
is retained to do anything, it is to handle the division of community property in the
context of divorce proceedings. Here, by contrast, Lally never agreed to be Rickey’s
general bankruptcy counsel. He was retained for an extremely narrow task, which was
filing an objection to a particular debtor’s chapter 13 plan.
Goebel is likewise inapposite, but it will take a few more paragraphs to
explain why. Unlike Goebel, this case comes to the appellate court after a full trial, not a
nonsuit, and so, unlike Goebel, the absence of expert testimony was only the main, but
not the exclusive, reason for the trial court’s decision. (For example, the trial judge said,
on the record, that she found “merit” to the proposition that Rickey had not proved
damages within the traditional “case within a case” standard governing legal malpractice
actions.) The significance of the procedural difference is this: Unlike Goebel, all
conflicts in evidence and inferences drawn from the evidence in this case are resolved in
favor of the respondent, not appellant.
And one of those items of evidence, impliedly credited by the trial court
here, involves Lally’s testimony that in bankruptcy proceedings, judgments and
arbitration awards are “treated the same.” So the question arises: Can we say, as a
matter of law, that Lally’s free-to-pursue-her-judgment statement was so obviously below
the standard of care of bankruptcy attorneys specifically hired “only” to file plan
objections that no expert testimony was needed to establish the proposition that the
statement was below the standard of care.
6
We can’t. This case does not come to us in a vacuum. The overall
circumstances of Lally’s “judgment” statement included at least four background factors
that tend against any matter-of-law conclusion of obvious malpractice: (1) The
statement was made at a time when Reed’s chapter 13 bankruptcy had been dismissed,
apparently in part because Reed didn’t make payments on the arbitration award, so the
focus of the attorney-client relationship was on recovery of the arbitration award, not
whatever else Lally might do to extract money from Reed; (2) that arbitration award was
the functional equivalent to a bankruptcy attorney of a judgment; (3) Lally’s retention
was specifically focused on objecting to Reed’s chapter 13 plan and, concomitantly, on
preventing Reed from getting out of what he already owed to Rickey, not on finding
ways to assert new state law claims against him; and (4) with the dismissal of the
bankruptcy, Rickey was back to a situation where there were no obstacles to any state
court actions against Reed. And the point bears repeating: Rickey did not hire Lally for
state court prosecution of all possible claims arising out of Reed’s apparently botched job
of remodeling, but only to object to his plan in bankruptcy court.
Under the totality of such circumstances, whether Lally fell below the
standard of care in using, in the bankruptcy context, the word “judgment” when
“arbitration award” would have been more felicitous – or even in earlier not gratuitously
doing extra work on the theoretical possibility that Rickey might yet obtain a greater
recovery from Reed on some fraud-latent defect theory – is not something we have the
expertise to ascertain. None of the members of this panel are bankruptcy experts. And
without expert testimony as to what a bankruptcy lawyer would have been normally
expected to do under the circumstances, whether Lally’s conduct fell below the standard
of care is a mystery to us, as it was to the trial court. That mystery necessitated a
judgment for the defense.
7
The judgment is affirmed. Lally shall recover his costs on appeal.
BEDSWORTH, J.
WE CONCUR:
RYLAARSDAM, ACTING P. J.
FYBEL, J.
8