Opinion
In Ferguson v. Lieff, Cabraser, Heimann & Bernstein (2003)
FACTUAL AND PROCEDURAL BACKGROUND
During the 1970’s and 1980’s Pointe entities developed three master-planned communities in the Phoenix, Arizona area, the focal points of which were upscale resorts named The Pointe at Squaw Peak, The Pointe at Tapatio Cliffs and The Pointe at South Mountain. For financial reasons, Pointe brought the Mutual Life Insurance Company of New York (MONY) into the resorts in 1986 under joint venture agreements.
More than 10 years later disputes arose between Pointe and MONY pertaining to the joint venture agreements and the amount of proceeds to which MONY was entitled when Pointe exercised its right to purchase MONY’s interest in The Pointe at Tapado Cliffs, and the amount of proceeds to which MONY was entitled when The Pointe at Squaw Peak was sold to the Hilton Hotel Corporation (Hilton). MONY brought a declaratory relief action against Pointe in United States District Court, District of Arizona.
On October 6, 1998, Pointe retained Procopio, a San Diego law firm, to represent it in the litigation. The retainer agreement states it was entered into in San Diego. It also provides: “Any dispute concerning this agreement shall be determined under the internal laws of the [Sjtate of California. Any suit by any party concerning this Agreement shall be filed and tried in San Diego County, California.”
Pointe filed a separate declaratory relief action against MONY concerning The Pointe at Tapado Cliffs, and it was consolidated with MONY’s action. Pointe also filed a counterclaim against MONY for breach of contract, breach of fiduciary duty, and breach of the covenant of good faith and fair dealing. Pointe prayed for punitive damages related to the sale of The Pointe at Squaw Peak to Hilton.
MONY moved for summary judgment on the punitive damages claim, arguing there was no evidence that in allocating all of the sale proceeds to itself it acted with “the requisite evil mind” under Arizona law. Pointe argued that “MONY manipulated the closing documents four times on the day of closing escrow; hired its own counsel to represent the joint venture in the resort’s sale; repeatedly changed its legal theories to justify its actions”; and knew Pointe expected to receive approximately $15 million from the sale, but falsely claimed the joint venture agreement limited Pointe’s share of the proceeds to $300,000.
The court granted the motion and dismissed Pointe’s punitive damages claim. The court explained that “even giving [Pointe] the benefit of reasonable inferences from its cited evidence, . . . the evidence does not clearly and convincingly show the requisite evil mind and evil conduct required by the Arizona courts to justify submitting to a trier of fact the issue of punitive damages.” The court found the evidence “only demonstrates that MONY kept the proceeds to which it believed it was entitled.”
At a jury trial, Pointe defeated MONY’s claims and obtained compensatory damages of $16,723,191 related to the sale of The Pointe at Squaw Peak to Hilton.
Pointe then brought this action against Procopio for malpractice and breach of fiduciary duties. As is relevant here, the first amended complaint alleged Procopio
Procopio moved for summary judgment, arguing that under Ferguson, supra,
Pointe argued that in the underlying action Procopio refused to submit two memoranda written by Bob Brooks, managing director of Pointe’s resorts at the relevant time. In a May 24, 1991 memorandum, Brooks memorialized conversations he had with several MONY representatives the previous day over the course of several cocktails and dinner. Brooks attributed the following comments to Tom McCahill of MONY: “[Tjhese are our assets. You understand we own 96% of Squaw Peak. . . . We are planning on squeezing Bob Gosnell [Pointe’s principal] down, which means by the end of the year we are going to take over Squaw Peak. Next June, we’ve got the management of Tapatio Cliffs and the following December we’ve got South Mountain. That’s going to happen. So, are you getting the picture? Where would your allegiance be, Bob [Brooks]?” Further, McCahill reportedly said, “we are prepared to litigate. Bob [Gosnell] can’t last through litigation.”
Brooks’s June 5, 1991 memorandum was reportedly a transcription of a telephone conversation he had that day with Mark Tobin of MONY.
The June 5 memorandum also stated that Tobin told Brooks; “[A]ll of the [sz'c] sudden, all you’re doing is saying to [B]ob [Gosnell], you have a choice, pal. Its [szc] your choice. You can walk away ... or you can go to court and live in a fairytale dream to think that your pockets are deeper than MONY’s. . . . [Gosnell] can’t possibly think that [he] can mount a legal effort that is stronger [than] what we can pay for. We wouldn’t be sending out our in-house legal people who do foreclosures. We are going to pick up the phone and call ABA [American Bar Association] and say, who are the biggest asshole litigators you have, and send the bill to this address. And, by the way, they can stay for the next two years on us. With their families.”
Brooks’s memoranda, however, were not introduced through a declaration by Brooks. Rather, Gosnell’s declaration stated the “Brooks memoranda, Exhibits 25 and 26 to Defendant’s motion, set forth admissions by MONY representatives as to their evil state of mind; specifically,
Pointe also submitted the declaration of Attorney Brian Goodwin. The declaration stated that Goodwin reviewed the draft opposition Procopio prepared to MONY’s summary judgment motion in the underlying action and advised Procopio it was insufficient to withstand the motion. The declaration also stated Goodwin believed the Brooks memoranda were admissible and he advised Procopio it “needed to and could use the Brooks memoranda,” but Procopio declined on the ground they are hearsay.
In its opposition, Procopio objected to the Brooks memoranda on hearsay grounds, and because they were written in 1991, approximately eight years before a dispute arose between Pointe and MONY regarding the sale of The Pointe at Squaw Peak to Hilton. The evidence shows that after MONY obtained summary judgment on Pointe’s punitive damages claim in the underlying action, Pointe consulted two attorneys outside the Procopio firm to discuss the potential for a successful motion for reconsideration based on the Brooks memoranda. Attorney Donald Petrie believed the court would exclude the Brooks memoranda because they were not newly discovered, were hearsay and were not sufficiently probative under Arizona law to establish a prima facie case of punitive damages against MONY. Attorney David Niddrie believed the Brooks memoranda were inadmissible because they were not newly discovered, were “remote in time to the conduct giving rise to the punitive damages claims,” lacked credibility because Brooks prepared them to make MONY look bad, were double hearsay, and appeared irrelevant because it was unclear whether their intent was to drive Gosnell out of management or out of the partnership.
The court granted Procopio’s motion and entered judgment for it on January 27, 2006. The court found Pointe “has raised a triable issue of fact that [Procopio] might have offered more evidence in support of [Pointe’s] opposition to MONY’s motion for summary judgment, in order to have the issue of punitive damages go to the jury,” but “as a matter of law, punitive damages are not recoverable in California in a legal malpractice action as a form of compensatory damages.”
DISCUSSION
I
Standard of Review
A “party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he [or she] is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001)
n
Retrospective Application of Ferguson
In Ferguson, our high court held that for public policy reasons punitive damages allegedly lost in an underlying action cannot be recovered as compensatory damages in a legal malpractice action. The court explained that “[m]aking a negligent attorney liable for lost punitive damages would not serve a societal interest, because the attorney did not commit and had no control over the intentional misconduct justifying the punitive damages award. Imposing liability for lost punitive damages on negligent attorneys would therefore neither punish the culpable tortfeasor [citation] . . . nor deter that tortfeasor and others from committing similar wrongful acts in the future.” (Ferguson, supra, 30 Cal.4th at pp. 1046-1047.) The court also concluded “permitting recovery of lost punitive damages would violate the public policy against speculative damages” (id. at p. 1048), “the complex standard of proof applicable to claims for lost punitive damages militates against the recovery of such damages” (id. at p. 1049), and “allowing recovery of lost punitive damages as compensatory damages in a legal malpractice action may exact a significant social cost” through increased malpractice insurance or exclusion of coverage for malpractice actions. (Id. at p. 1050.)
Pointe contends the court erred here by applying Ferguson retrospectively. “ ‘[I]t is the general rule that a decision of a court of supreme jurisdiction overruling a former decision is retrospective in its operation and that the effect is not that the former decision was bad law but that it never was the law.’ ” (In re Retirement Cases (2003)
In Ferguson, the court resolved a conflict between Courts of Appeal. The court agreed with this court’s opinion in Piscitelli v. Friedenberg (2001)
Ferguson was decided on June 9, 2003, nearly a year before Pointe filed its original complaint against Procopio on March 5, 2004. Pointe’s retroactivity argument, however, is based on the date of its retainer agreement with Procopio, October 6, 1998. Pointe asserts that in 1998 “California law and Arizona law were comparable in terms of a lawyer’s responsibility for negligence,” and with “Piscitelli and Ferguson, California and Arizona law drastically diverged in terms of a lawyer’s responsibility for negligence, to Pointe’s great detriment. This change unfairly undermines Pointe’s reasonable reliance on the previously existing state of the law, and imposes great hardships on Pointe.” Pointe asserts that based on Merenda, it believed Procopio “would face legal responsibility for the consequences of any negligence, including the loss of punitive damages.”
The issue of fairness in applying a judicial decision retrospectively “encompasses the extent of reliance on the old standards by the parties . . . , and the ability of litigants to foresee a change in the law.” (Estate of Propst (1990)
Procopio contends Pointe waived the retrospective application issue by not raising it at the trial court. In its memorandum of points and authorities, Pointe did not expressly mention the retrospective application of Ferguson, although it did cursorily argue Ferguson should not be applied because “California law as to [recovery of lost punitive damages in a malpractice action] changed during the pendency of the representation.”
Pointe asserts we may nonetheless consider the matter because theories pertaining solely to questions of law may be raised for the first time on appeal. “An appellant may be permitted to change his theory when a question of law alone is presented on the facts appearing in the record. In that case, the opposing party is not required to defend for the first time on appeal against a new theory that contemplates a controverted factual situation.” (9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, § 407, p. 459.) As discussed, however, the issue of a party’s reliance on prior law is a question for the trier of fact. For instance, without any citation to the record Pointe asserts “application of Ferguson will deprive Pointe of a right that it bargained heavily on having.” (Italics added.)
Pointe also asserts Procopio “fully understood, before the trial court, both the fact issues underlying Pointe’s appellate arguments, and the essential legal approaches, even if all of the same cases and statutes were not cited to the trial court.” Pointe, however, cited no legal authority concerning the retrospective application of judicial opinions in its memorandum of points and authorities. Further, Pointe’s counsel did not appear for the hearing and instead stipulated to the court’s tentative ruling. Additionally, Pointe submitted no evidence that in entering the retainer agreement with Procopio it relied on Merenda or even thought about a potential malpractice claim. We cannot presume
Pointe asserts the following paragraph from Gosnell’s declaration shows it raised the retrospective application argument at the trial court: “Subsequent to the execution of the [Procopio] engagement letter, . . . Pointe was not made aware of a change in California’s case law as to the ability of . . . Pointe to pursue [Procopio], given [its] deliberate denial of [its] client’s wishes, then the loss of punitive damages. I have recently learned that this change commenced in 2001 during the time in which we were pleading with [Procopio] to introduce the evidence for the theories of ‘Evil Mind,’ along with the related evidence. . . . [Procopio] did not advise us as to this significant change in his engagement. Had [it] done so, there is no question, given the continued refusal to introduce ‘Evil Mind’ with malpractice now potentially not being a method of recovery, . . . Pointe would have dismissed [Procopio] as our counsel. Procopio was the only California counsel we had at the time.”
The documentation filed in conjunction with the motion for summary judgment, however, was voluminous and the trial court was not required to comb through it to find evidence to support a retroactivity argument that Pointe did not expressly raise or support with legal authority in its memorandum of points and authorities. Further, Pointe did not cite the above paragraph from the Gosnell declaration in its separate statement as required. (Code Civ. Proc., § 437c, subd. (b)(3).)
“Generally, the rules relating to the scope of appellate review apply to appellate review of summary judgments. [Citation.] An argument or theory will . . . not be considered if it is raised for the first time on appeal. [Citation.] Specifically, in reviewing a summary judgment, the appellate court must consider only those facts before the trial court, disregarding any new allegations on appeal. [Citation.] Thus, possible theories that were not fully developed or factually presented to the trial court cannot create a ‘triable issue’ on appeal.” (American Continental Ins. Co. v. C & Z Timber Co. (1987)
Even absent waiver, however, we would find against Pointe on the issue. Under Pointe’s theory that the Gosnell declaration shows retrospective application of Ferguson would be unfair, we must decide whether Procopio had a duty to learn about and advise Pointe of the Piscitelli or Ferguson opinions. We agree with Procopio that it had no such duty. An attorney has a duty to “respond promptly to reasonable status inquiries of clients and to keep clients reasonably informed of significant developments in matters with regard to which the attorney has agreed to provide legal services.” (Bus. & Prof. Code, § 6068, subd. (m).) Similarly, rule 3-500 of the State Bar Rules of Professional Conduct provides a “member shall keep a client reasonably informed about significant developments relating to the employment or representation, including promptly complying with reasonable requests for information and copies of significant documents when necessary to keep the client so informed.”
Under the retainer agreement, Procopio agreed to adequately represent Pointe in
Pointe cites Janik v. Rudy, Exelrod & Zieff (2004)
The Janik court concluded that “a cause of action under the UCL [unfair competition law] would have been based on precisely the same practice, and subject to much the same legal analysis, as the certified cause of action under the Labor Code. . . . Class counsel therefore were obliged to consider the advantages 'and disadvantages to the class of seeking to add a UCL cause of action to their complaint, to bring these considerations to the attention of the class representatives, and to take or recommend such action . . . .” {Janik, supra, 119 Cal.App.4th at pp. 942-943.) Janik is inapplicable as it pertains to claims against third parties arising from the same course of conduct.
Additionally, Pointe’s contention that the retroactive application of Ferguson impairs its vested contract rights is erroneous. “It is well settled the existing applicable law is part of every contract, the same as if expressly referred to or incorporated in its terms.” {People v. Gipson (2004)
III
Choice-of-law Clause A
Additionally, Pointe contends the retainer agreement’s choice-of-law clause is unenforceable under estoppel principles because Procopio “gained Pointe’s continuing assent to the terms of the [r]etainer [agreement through a constructive concealment of facts, and through a breach of a duty to speak.”
“ ‘The doctrine of equitable estoppel is founded on concepts of equity and fair dealing. It provides that a person may not deny the existence of a state of facts if he intentionally led another to believe a particular circumstance to be true and to rely upon such belief to his detriment.’ [Citation.] The traditional elements of estoppel are: ‘ “(1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury.” ’ ” (Oakland Raiders v. Oakland-Alameda County Coliseum, Inc. (2006)
Pointe, however, did not raise an estoppel argument at the trial court, and thus waived the matter. In any event, as we have concluded, Procopio had no duty to learn about or discuss the Piscitelli or Ferguson decisions with Pointe. Since Pointe’s estoppel argument is based on the asserted breach of duty, it is without merit.
B
Alternatively, Pointe contends that even if the choice-of-law clause is valid and enforceable, under California conflict of law rules the court should have applied Arizona law. In Elliott v. Videan (1989)
Pointe, however, acquiesced to the choice-of-law clause by filing and prosecuting its action in San Diego County Superior Court and seeking damages against Procopio based on a California statute, Civil Code section 3294. It cannot now seek the selective application of Arizona law to its claim for lost punitive damages as an element of compensatory damages. “When a rational businessperson enters into an agreement establishing a transaction or relationship and provides that disputes arising from the agreement shall be governed by the law of an identified jurisdiction, the logical conclusion is that he or she intended that law to apply to all disputes arising out of the transaction or relationship.” (Nedlloyd Lines B.V. v. Superior Court (1992)
Even absent waiver, however, we are unpersuaded by Pointe’s contention. “In determining the enforceability of arm’s-length contractual choice-of-l'aw provisions, California courts shall apply the principles set forth in Restatement [Second of Conflict of Laws] section 187, which reflects a strong policy favoring enforcement of such provisions.” (Nedlloyd, supra, 3 Cal.4th at pp. 464-465.)
Subdivision (2) of the Restatement Second of Conflict of Laws (Restatement), section 187 is at issue here.
In Nedlloyd, the forum state was California and the issue was whether the law of the chosen jurisdiction, Hong Kong, should be applied. (Nedlloyd, supra,
The substantial relationship and reasonable basis tests are met when one of the parties is domiciled in the chosen state. (Nedlloyd, supra,
Pointe contends Arizona law would apply in the absence of the choice-of-law provision in the retainer agreement. Under Restatement, section 188, in the absence of an effective choice-of-law provision, the court is to consider “relevant contacts,” which include “(a) the place of contracting, [f] (b) the place of negotiation of the contract, [f] (c) the place of performance, FIO (d) the location of the subject matter of the contract, and [][] (e) the domicil, residence, nationality, place of incorporation and place of business of the parties.” (Rest., § 188, subd. (2)(a)-(e).) These contacts must not be applied mechanically (Application Group, Inc. v. Hunter Group, Inc. (1998)
The retainer agreement states it was entered into in California. Additionally, Procopio’s place of business is California and Gosnell resides here. Without any evidentiary basis, Pointe asserts that “presumably, Pointe . . . signed and either mailed or faxed the agreement back to [Procopio] from Arizona—thus forming the contract in Arizona.” Also lacking any evidentiary support is Pointe’s assertion it would have negotiated the retainer agreement from Arizona. Parties are required to include citations to the record in their briefs, and the absence of citations allows us to treat an issue as meritless. (Troensegaard v. Silvercrest Industries, Inc. (1985)
The retainer agreement’s subject matter and Procopio’s performance were in Arizona, and that state, of course, has an interest in the performance of attorneys it admits to practice before its courts on a pro hac vice basis. The relevant issue in assessing the Restatement, section 188 factors, however, is the California malpractice action, not the underlying Arizona action. (Rest., § 188.) When the parties entered into the retainer agreement the subject matter and place of performance were known and specified, and yet they selected California as both the forum state and the state whose law would be applied to any malpractice action, presumably because they are domiciled here. Thus, there was no surprise or unfair advantage and application of California law met the parties’ expectations. Further, “ ‘in the absence of an effective choice of law by the parties’ as an initial proposition, California would normally apply its own ‘governmental interests’ test. [Citation.] That test begins with applying the law of the forum state, i.e., California, unless there is some reason not to.” (ABF Capital Corp. v. Grove Properties Co., supra, 126 Cal.App.4th at pp. 221-222.) We conclude California law would have applied here even in the absence of the choice-of-law provision in the retainer agreement.
Moreover, regardless of the Restatement, section 188 factors, enforcement of the choice-of-law provision in the retainer agreement was proper because Arizona’s interest in the matter is not materially greater than California’s. Procopio is a California law firm governed by the laws of California, and for sound public policy reasons our high court has held that California attorneys are not subject to speculative and potentially exorbitant lost punitive damages that may bear no relation to the attorneys’ wealth or ability to pay. {Ferguson, supra, 30 Cal.4th at pp. 1047-1049.) This case illustrates the dangers of another holding, as Pointe sought to saddle Procopio with between $48 and $160 million in lost punitive damages, figures that are approximately three to 10 times the compensatory damages award Procopio obtained for Pointe pertaining to the sale of The Pointe at Squaw Peak to Hilton. In Ferguson, the court noted that out-of-state cases such as Elliott, supra,
Further, in Ferguson the court was concerned with the effect of lost punitive damage awards on the affordability and availability of malpractice insurance to protect California consumers and attorneys, a matter not generally relevant to Arizona courts. {Ferguson, supra,
Contractual choice-of-law clauses are “usually respected by California courts” {Smith, Valentino & Smith, Inc. v. Superior Court, supra,
DISPOSITION
The judgment is affirmed. Procopio is entitled to costs on appeal.
Benke, J., and McIntyre, J., concurred.
Notes
Procopio asserts Pointe also received an award of $16,812,139 for The Pointe at Tapatio Cliffs, but it does not provide an accurate citation to the appellate record.
Analysis of the June 5 memorandum is difficult because quoted material is not attributed to Brooks or Tobin and the context of their conversation is unclear.
Pointe also provided Procopio with other voluminous documents to support its punitive . damages claim against MONY. Pointe referred to one collection of documents as “The Tome,” and to the other collection as the “Punitive Damages Binder.” Pointe does not rely on or discuss any particular item from these collections.
Pointe’s reliance on Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988)
Subdivision (2) of Restatement, section 187 provides: “The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either [ft] (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or [ft] (b) application of the law of the chosen state would be contrary to a fundamental' policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of [Restatement,] [section] 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.”
Other states also bar the recovery of lost punitive damages as an element of compensatory damages in malpractice actions. (See, e.g., Tri-G v. Burke, Bosselman & Weaver (2006)
Given our holding, we are not required to consider Procopio’s contention that the Brooks’s memoranda were inadmissible in the MONY litigation for a variety of reasons, and thus Pointe failed to raise a triable issue of fact as to whether Procopio could have submitted additional evidence in support of Pointe’s punitive damages claim in that action.